Droughts, Commodity Prices, and World Wide Civil Unrest

Perhaps, you have been following the news lately (Summer of 2012) and noted that we’ve had a terrible issue with droughts in the Midwestern part of the United States. This means the price of grain, wheat, corn, and soybeans amongst many other crops here at home have increased. We also have a challenge because it takes water for livestock; those animals need feed which is also grown. If the ranchers don’t have that, they have to take the animals to slaughter early, trimming down the herd, and that raises the cost of meat. We also have mandates for ethanol, and it takes water to refine ethanol, and it takes water to grow the corn – seed scientists are working feverishly on drought resistant corn strategies.

Now we have competing issues for food, much of this food we export to other nations. When we have shortages here, and since we grow so much of the world’s food supply due to our mechanization, incredible agricultural technologies, and streamline distribution system when our prices go up, it affects world commodity food prices. We are not the only nation that is having a drought situation, and there are other challenges as well such as the ever-growing Ug99 fungus which is challenging wheat crops in other parts of the world.

A couple of years ago Russia had big wildfires, and they were worried they wouldn’t have enough wheat, so they canceled all exportation of wheat so that their own citizens would have enough. This then wheat commodity prices worldwide to go sky high. Many nations such as Egypt needed that wheat to feed their people as over 80 million of them only make one to two dollars per day. Without the wheat, there was civil unrest, which was part of the reason for the Arab Spring.

They say a civilization is only three meals away from chaos, if that is true we might be headed for more challenges in the coming year. In fact there was an interesting article in the Wall Street Journal on September 5, 2012 by Michael Haddon and Christopher Emsden titled; “UN Calls for Measures to Avert a Food Crisis,” and they are asking the United States to forgo its mandate on ethanol production, and use that water and land to grow agricultural products to ship to other parts of the world to alleviate the price.

Of course, the United States can’t do that because then we’d import too much oil, further unbalancing our trade flows, and we are already upside down due to China and OPEC. Last time I checked they were not doing anything to help us balance things out. Therefore China will have to pay more for soybeans, and the Middle East will have to pay more for wheat, if anyone wants to buy whatever corn happens to be left, they’ll have to pay too, and as they pay more money, we will have a better trade balance.

Yes, commodity prices matter around the world, and when they get too far out of whack they can bring down entire civilizations governments. You should expect to see more challenges ahead in 2013. Please consider all this and think on it.