Recession Compounds World Food Crisis

The Wall Street Journal reports that farmers to cut back on planting amid market weakness, which is pressuring consumer prices.

(emphasis mine) [my comment]

MARCH 13, 2009
Grain Costs Down, Groceries Not
Farmers to Cut Back on Planting Amid Market Weakness, Pressuring Consumer Prices

By SCOTT KILMAN and LAUREN ETTER

Commodity prices are down, but the bad news for consumers is that U.S. farmers are responding by cutting back their planting and production, reducing the chances of lower prices reaching the supermarket.

Clay T. Mitchell of Buckingham, Iowa, said he will
reduce his corn acreage 26% when the planting season starts in mid-April. The 930 acres of corn that the 35-year-old farmer plans to grow would be his smallest effort ever, even though corn has long been his most profitable crop. He is planting more soybeans, which don't need expensive nitrogen fertilizer.


Farmers are planning to cut production of corn, shown here at harvest, and other high-cost crops as lower commodity prices squeeze the industry.

"Farming is very strange right now," said Mr. Mitchell, who had some of the best years of his farming career in 2007 and 2008 only to see the recession deflate commodity prices.

Across the nation, farmers are making plans to cut their production of corn, wheat, rice, peanuts, beef, pork, poultry and milk. In addition to growing more soybeans, farmer are also planning to grow crops more cheaply, such as by using less fertilizer and pesticides. Also, some farmers plan to grow just one crop on land that normally produces two each year, and to let some land lie fallow throughout the year.

Farmers are expected to plant the fewest acres of cotton since 1983, the Agriculture Department estimates. The USDA expects the production of meat from every major category of farm animal to drop for the first time since 1973.

"Farmers are very nervous," said Craig Rowles, general manager and part-owner of Elite Pork, which raises 145,000 hogs annually near Carroll, Iowa. With hog prices down 28% since the summer, he has shrunk his output about 7% and cut his feeding costs by selling his animals a week or two sooner for slaughter.

The magnitude of the farming retreat won't come into focus for several weeks. The USDA releases its prospective plantings report on March 31 and the usual start of the Midwest planting season is in April, weather permitting. But orders for seed and fertilizer are already giving clues to grain traders that the acreage of some crops, including corn, might drop by a few million acres.



Commodity prices dropped late last year when the thickening global recession helped to drain demand for everything from juicy steaks to the corn used to fatten the steers they come from. Prices of corn, soybeans, wheat and rice have fallen by half or more from last year's highs. The price received by dairy farmers for milk this year is heading toward the lowest levels since 1978.

The USDA is predicting that net farm income, a rough measure of profitability, will sink 20% this year to $71.2 billion.

"The recession is now catching the farm sector," said Jason R. Henderson, an economist at the Federal Reserve Bank of Kansas City, which is detecting the first quarterly decline in farmland prices in a decade. The Federal Reserve Bank of Chicago said fourth-quarter farmland values in its district dropped 4% from the trailing quarter, also its first quarterly decline in a decade.

Outside the farm belt, the drop in commodity prices in recent months is easing th e financial pressure on food manufacturers, the biggest of which saw their input costs jump by hundreds of millions of dollars last year. However,
consumers aren't seeing lower grocery prices and aren't likely to. Michael Swanson, an economist at banking giant Wells Fargo & Co., said he expects retail food prices to climb 2.5% to 3% in 2009, on top of the 5.5% rise in 2008.

The scope of the production retreat by farmers is fueling concerns among food makers that the costs of their ingredients won't fully recede to the low levels to which they had grown accustomed before 2007. After trading around $2 a bushel for a decade, the price of corn -- the nation's biggest crop -- jumped above $7 a bushel last summer, then fell by half as the recession cooled demand.

"Corn is not going back" to its low levels of earlier this decade, C. Larry Pope, president and chief executive of pork producer Smithfield Foods Inc., said Thursday in a conference call with analysts after reporting a loss of $103.1 million, or 72 cents a share, for the fiscal third quarter ended Feb. 1. Corn, which is fed to hogs, is one of Smithfield's biggest expenses.

In trading at the Chicago Board of Trade Thursday, the corn-futures contract for March delivery rose 20.75 cents a bushel to settle at $3.7675.

Supplies of crops such as corn and soybeans are relatively tight. Wheat farmers across the Southern Plains, in states such as Texas and Oklahoma, who planted their crop in the fall, are now beset by a drought. According to the USDA, two-thirds of the wheat crop in Texas is in very poor to poor condition.

At the same time,
the consumption of corn and soybeans from some quarters is continuing to grow despite the global economic slowdown. China, stung by high food prices last year, has bought 600 million bushels of U.S. soybeans since September, about one-fifth of the entire U.S. harvest, according to Dan Basse, president of Chicago commodity-forecasting concern AgResource Co.

Although hamstrung by overbuilding and bad hedging decisions by its executives,
the U.S. ethanol industry will consume about 3.7 billion bushels of corn, or 30% of the fall corn harvest. Federal mandates for alternative fuels will help increase the ethanol industry's appetite to 4.1 billion bushels of corn next year, USDA economists figure. On top of this, ethanol executives are lobbying federal regulators to allow more ethanol in gasoline.

Robert Moskow, a food-industry analyst at Credit Suisse Securities, is already concerned that
food manufacturers will face commodity-price spikes as early as next year if the ethanol industry gets more help from Washington. "We are setting up ourselves again for unintended consequences," he said.

Reuters reports that recession compounds world food crisis.

Recession Compounds World Food Crisis: UN's WFP
Source: Reuters
04/03/2009

Washington, March 3 - The global economic downturn has compounded the food crisis, pushing more people over the brink of hunger and threatening stability around the world, the head of the United Nations' food relief agency said on Tuesday.

Food supplies are tight and expensive, and more people in poor countries are unable to afford what they need because of the recession, said Josette Sheeran, executive director of the World Food Programme.

"I think the world would like to focus on one crisis at a time, but we really can't afford to," Sheeran told Reuters after a speech to a think-tank and aid groups.

"These are not separate crises. The food crisis and the financial (crisis) are linking and compounding," she said, noting lack of food often leads to political instability.

Sheeran said the
WFP needs about $6 billion this year for food aid, which it sends to about 100 million of the world's poorest people in 77 countries.

As of Feb. 15,
donor countries had contributed less than 10 percent of that total, or $453.4 million, including $171.6 million from the United States and $128.2 million from Japan.

Total contributions last year were $5.043 billion, up from $2.712 billion in 2007, WFP data showed.

Sheeran told Reuters she was worried that wealthy nations preoccupied with their own economic w oes may not give enough to cover the WFP's requirements this year.

By May, the WFP will assess whether it needs to cut back on programs because of a lack of aid, Sheeran said.

In 2008, weather problems and surging demand for grain for food and biofuels pushed food prices to record highs, causing riots and hoarding in some countries.

Prices have since eased, but remain high.

"I'm really putting out the warning that ... we're in an era now where supplies are still very tight, very low, and very expensive," Sheeran said.

The UN's Food and Agriculture Organization estimates that 963 million people worldwide were undernourished last year, up from 923 million in 2007.

The WFP has received
requests for help this year from countries like Kyrgyzstan, whose economies rely on remittances -- help from citizens working outside the country.

Kyrgyzstan has not asked for WFP help since 1992, she said, but remittances have dried up due to the economic downturn.

"We have a case of the jitters out there," Sheeran said in her speech, noting
Arthur Yap, agriculture secretary for the Philippines, had told her he did not feel confident the country could secure enough food this year.
...
World leaders need to keep the global food crisis near the top of their agendas for upcoming summits, she said.

Reuters reports that lower prices aggravate food crisis.

Lower Prices Aggravate Food Crisis - U.N. Official
Source: Reuters
10/03/2009

Geneva, March 10 - Commodity price declines are hampering farming investments and this could worsen the world food crisis, a senior United Nations official said on Monday.

Navi Pillay, the U.N. High Commissioner for Human Rights, said that although the market prices of wheat, corn and rice are now much lower than their 2008 peaks,
hundreds of millions of people were at risk from food shortages and shocks.

"Perversely, falling food prices are currently discouraging investment in agriculture. This is turn hampers much needed efforts to increase food production," Pillay told a discussion about the human rights implications of food shortages.
...
PREPARE FOR FOOD SHOCKS

"Future shocks shall occur, of the same magnitude. We must be better prepared to face them," he said, citing a need for smarter food aid and fairer rules for agricultural trade.

The Food and Agriculture Organisation (FAO), a Rome-based U.N. agency, has said
more than 30 countries are still in the midst of food crisis despite the fall in cereal prices alongside the onset of global economic turmoil in the second half of 2008.

My reaction:

1) Across the nation, farmers are making plans to cut their production of corn, wheat, rice, peanuts, beef, pork, poultry and milk.

2) farmer are also planning to grow crops more cheaply, such as by using less fertilizer and pesticides.

3) farmers plan to grow just one crop on land that normally produces two each year, letting land lie fallow throughout the year.

4) Farmers are expected to plant the fewest acres of cotton since 1983

5) the production of meat from every major category of farm animal to drop for the first time since 1973.

6) The magnitude of the farming retreat won't come into focus for several weeks, but orders for seed and fertilizer are already giving clues to grain traders that plantings might drop by a few million acres.

7) Consumers aren't likely to see lower grocery, with retail food prices to climb 2.5% to 3% in 2009

8) The scope of the production retreat by farmers is fueling concerns among food makers that the costs of their ingredients won't fully recede to the low levels to which they had grown accustomed before 2007.

"Corn is not going back" to its low levels of earlier this decade, C. Larry Pope, president and chief executive of pork producer Smithfield Foods Inc., said Thursday in a conference call with analysts.

9) Supplies of crops such as corn and soybeans are relatively tight.

10) Winter wheat crops across the Southern Plains (Texas, Oklahoma, and Kansas), are now beset by a drought.

11) two-thirds of the wheat crop in Texas is in very poor to poor condition .

12) the consumption of corn and soybeans from some quarters is continuing to grow

A) China has bought 600 million bushels of US soybeans since September, about one-fifth of the entire U.S. harvest.
B) The U.S. ethanol industry will consume about 3.7 billion bushels of corn, or 30% of the fall corn harvest. (On top of this, ethanol executives are lobbying federal regulators to allow more ethanol in gasoline.)

13) The food crisis and the financial (crisis) are linking and compounding

14) World Food Program needs about $6 billion this year for food aid, which it sends to about 100 million of the world's poorest people in 77 countries.

15) As of Feb. 15, donor countries had contributed less than 10 percent of that total, or $453.4 million

16) By May, the WFP will assess whether it needs to cut back on programs because of a lack of aid

17) The WFP has received requests for help this year from countries like Kyrgyzstan, whose economies rely on remittances. Kyrgyzstan has not asked for WFP help since 1992.

18) Philippines's agriculture secretary, Arthur Yap, has said he did not feel confident the country could secure enough food this year.

19) More than 30 countries are still in the midst of food crisis


Conclusion:
Farmers the world over are responding to the current financial crisis by lowering plantings and reducing inputs. Farmers are taking these steps because the economics don't stack up and/or because they lack the credit.

This lower global grains production in 2009 will tighten world stocks. If prices remain where they are and credit continues to be unavailable, plantings for the 2010 crops may be significantly lower again. Add to all this the loss of production due to droughts and other weather related events together with growing world/biofuel consumption, and the world seems headed towards a food crisis of catastrophic proportions.

------------------

Radio Interview

On another note, I will be on the radio on Tuesday, March 17th. I will be discussing my article *****Catastrophic Fall in 2009 Global Food Production***** with Reuben Torres on his show "Lets Get Real With Reuben Torres".

The interview will begin at around 9:10 pm and last 45 minutes.

WWW.WAM08.COM
www.blogtalkradio.com/LETSGETREALWITHREUBENTORRES

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One Response to Recession Compounds World Food Crisis

  1. Tarjan says:

    "...the U.S. ethanol industry will consume about 3.7 billion bushels of corn, or 30% of the fall corn harvest. Federal mandates for alternative fuels will help increase the ethanol industry's appetite to 4.1 billion bushels of corn next year, USDA economists figure. On top of this, ethanol executives are lobbying federal regulators to allow more ethanol in gasoline."

    Any country that will subsidize the use of a food crop like corn for use as an automobile fuel while large numbers of people in the world are starving is morally bankrupt.

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