Farm prices for food items are very high again

I am busy working on some bigger projects that I can’t write about yet, but I thought I would put up a little scanned in section from today’s WSJ relating to food prices. Food prices are now 18.5% higher than a year ago, and higher than when they reached their peak in 2008.

Wass Street Journal graph of food price indexHigh food prices are a concern, both for poorer people in the US, and for the huge number of poor people around the world. If food prices go up, many will not be able to pay for sufficient food for a well-balanced diet (assuming they could in the past). And of course, as food prices go up, people will cut back on spending on more discretionary items, since they have to eat.

The current rise in prices does not look like it has hit a maximum yet. The recent run-up in oil prices may not be fully reflected in the food costs. All of this is concerning.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply.
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18 Responses to Farm prices for food items are very high again

  1. beavercreekfarms says:

    Our cost of producing beef has gone up more than 18% it seems; particularly if
    you add in cost-of-living things like medical insurance, deductibles, property
    tax increases, etc etc. As for discretionary spending- forgetaboutit!
    There has been no 18% increase of profit or 18% increase in standard of
    living.

  2. Like everything else there are lots of factors here because ag is global. We raise dairy calves from babies on our little farm, mostly bull calves right now and their price wasn’t too bad last year – I can only guess because more people eating ground beef means greater demand for the leaner dairy breed steers to mix together with the trimmings of Beaver Creek’s animals.

    The dairy industry has seen a huge consolidation with many small dairies going teats-up due to wide swings in feed and milk prices in the oughts and now credit availability just about nil to boot. The monster dairies are producing at capacity just to keep their heads above water and that is keeping producer prices low.

    Corn is heading straight up, over $6 now and still rising – ’08 it was $7.50 and that killed a lot of dairies and ranchers. Corn is a big deal, it feeds all our meat/eggs/dairy, it sweetens our sodas and now is expected to fuel our cars too – if cellulosic ethanol takes off and they start taking not only the grain but the stover to the distillery, I doubt we’ll have much of a corn belt in a generation.

    • High corn prices means ethanol will be increasingly expensive. Whatever market there was for E-85 will become even less, and I wonder whether the export market will drop off. So maybe ethanol demand will drop. I don’t see many people clamoring for high priced E-15 for their cars either.

      At one point, I understood that some corn was a special kind that was best for ethanol, and less good for eating. Is this really true? Can pretty much all corn be converted back and forth in terms of use?

      • Pops says:

        Hi Gail, I’m MyGrandKidsFarm, don’t know how that happened…

        Anyway,
        Without mandates and subsidies ethanol would have never got moving in the first place so I’m thinking demand has nothing to do with price. Sharon Astyk today predicted that next year will see world hunger rise and that we in the US would see the government get involved with peak oil … I think it already is involved with PO (through ethanol) and that is already an affecting on world hunger.

        — About corn–
        I’d guess less than 5% of all corn grown in the US is “sweet” corn harvested when it’s immature and eaten off-the-cob or out of the can. 95% is “Field” corn (dent) left to dry in the field before harvesting and it’s what is ground for animal feed, distilled into ethanol, etc.

        Since the vast majority of field corn is not grown for direct human consumption all varieties are probably interchangeable. There might be some field corn hybrids that have a slightly higher carb content than others and so they might produce a fraction more ethanol, but for animal feed, carbs are good too so I wouldn’t think there would be much difference.

        Just FYI, almost half the field corn goes to animal feed, another third is ethanol, half the rest is exported for processing and feed and the last bit goes into industrial food products like sweeteners/starches. There must also be a little slice that goes to cornbread and tortillas but that’s probably a specialty crop too.

  3. Owen says:

    A particular company has my attention. BRFS. Brasil Foods. They are a major chicken exporter.

    The reason they have my attention is YUM Brands has announced they will triple the KFC outlet total in Africa over the next few years. Africa will have oil money to spend, and the shipping distance is minimal.

  4. wotfigo says:

    It’s not just food prices. All major resource indexes have had dramatic rises over the last year. This includes resources such as copper, molybdenum, coal, phosphates (fertilizer) etc etc.

    We are in the positive feedback loop of The Limits to Growth, resource depletion, excessive demand, high costs of all goods, less discretionary spending, further economic decline.

    Poverty, including food & energy poverty, can only increase for many people.

    • Owen says:

      30% of US retail spending is in the luxury segment. This is not a discretionary spending category that is particularly constrained by high gas prices.

      The poor get hit. It’s not going to stop because the rich also get hit.

      The only fix will be “intelligent riots” which are not possible with the internet. Intelligent in the context of not burning your own neighborhood. Rather, get on buses and travel to bank executive and lawyer neighborhoods and burn those.

      • Owen says:

        not = now

        my most common typo of late.

      • marty schoffstall says:

        I see union organized actions as the first wave, including wildcat and unannounced wildcat strikes like we probably had in NYC over snow removable. Before intelligent riots. In the US generally you need a local incident to spark a long simmering issue.

        It is DIFFERENT outside of the US from Greece to Mozambique, watching the Greeks organize events throwing molotov cocktails reminds me of the IRA in Belfast in the 70s.

        I’m well aware of the flash mob capabilities of the Internet, but I think there is a bit of an electronic trail there and in Pittsburgh last year, they used various laws to locate and arrest the coordinators.

  5. Todd says:

    We buy a lot of things in bulk* and extra amounts when they are on sale. I posted this on TOD the other day and it’s worth a repeat. http://www.grocerycouponguide.com/articles/eating-well-on-1-a-day/ This is a good read on his experience eating for a buck a day and how he did it with cupons and deals.

    * Real bulky stuff like grains are stored in used olive barrels (They range in size from 30-50 gallons) and we have 40 cu ft of freezer space.

  6. Arthur Robey says:

    Wotfigo mentioned Phosphate. That is a biggie.

    One of the things that I bought in preparation, is a Messerschmidt hand mill to make oats and flour from raw grain. It has been one of my more pleasing purchases.
    It is surprising how a handful of seed can make a meal. And I am developing amazing chest muscles grinding the wheat.
    Also bought and used is Rose Elliot’s The Bean Book.
    I can make weeks worth of food for $5. (The beans provide free entertainment).
    Powdered milk means fewer trips to the shops.
    And I am preparing my yacht(s).
    In preparation,
    Arthur

  7. Bicycle Dave says:

    I dabble in the stock market with a little chump change – kind of a game to see how my predictions actually play out in this sandbox. Earlier in the year, I bought a few shares of an agriculture fund (DBA) and a few shares of a US NG fund (UNG). From where I bought them, agriculture is up nearly 30% and NG is down nearly 30%. Although this was a financial wash for me, I guess I helped my broker keep up his yacht.

    What is interesting about this is the roll that NG plays in agriculture (maybe Pops can tell us how much) – NG was getting cheaper by the day and yet food was doing the reverse. The current NG price (very low) is not sustainable over the long run as the NG developers can’t make a profit at these prices. So, what does this say about food prices as NG becomes more expensive?

  8. Don Millman says:

    I think higher prices for farm commodities are a good thing for the U.S. For one thing, higher prices for corn, wheat, soybeans, and other agricultural commodities will draw resources (Land, Labor, and Capital) into agriculture, which is something that we need to maintain high levels of production. The U.S. has a comparative advantage in producing many farm commodities, and high prices for these will help our balance of trade deficit. Farmers need to make profits to invest in new equipment, land improvement, and possibly “new” organic farming techniques.

    Of course, I do not like paying higher prices at the supermarket, but (IMO) food has been underpriced for decades. Farming is a tough, risky, and sometimes dangerous business: Farmers and farm workers deserve a decent income.

    • Todd says:

      Don,

      “I think higher prices for farm commodities are a good thing for the U.S.”

      Let me start by saying I was once a small-scale certified organic “farmer” years ago and I understand the need for farmers to make money. The problem is that the economy is, essentially, a zero sum game; the more people spend on food (just like energy), the less they spend on other stuff. Since wages have been stagnant since the 70’s this means that the part of the economy that depends upon discretionary spending gets hit.

      So, to me, the question is who pays the price? Is it better for farmers who require a huge asset base to get any extra funds/profits or to short them so people can keep their jobs in other “industries” so people can buy crap from China in order to maintain a higher employment level?

      There is no good answer. I was on a “New Years” call while I was writing this. The guy in the family runs a fertilizer distribution facility in Ohio. The farmers there are buying potash like crazy (they just got a 70 train load of potash) – they made lots of money on corn this year and the weather is good to chisel it in.

      Todd

      • wotfigo says:

        “Food has been under priced for decades”

        This is true. It has been! At least in the West. But in those decades costs of diesel, phosphate fertilizers, government taxes, government compliance requirements, electricity, and farming equipment & vehicles have all risen dramatically.

        The mega corporate supermarket food chains buying in bulk drive prices to minimum levels. Farmers margins shrink. They get hit from both ends; ie higher costs & lower income. Farmers either get big or get out. The entire system encourages factory farming or abandonment of farms.

        Farmers markets & local food movements are growing but still only supply a small fraction of the daily food market. And then usually to high end socio-economic buyers or small local towns in agricultural communities.

        At first sight it looks like the consumer is better off — Low food prices. But as small local farmers are driven to the wall we enter an uncertain food future. Our food now is sourced either from giant farming conglomerates or from foreign countries that can compete with low cost food due to low labor inputs.

        The same thing happened in manufacturing. In the decades after WW II America made everything in the house from the telephone to the TV & from the radio to the refrigerator. And every garage had a vehicle from Detroit. But then manufacturing went to Asia. At first it looked like a great deal for the consumer — Cheap goods. But in the end (like now) no one has a job anymore & can’t afford all those cheap goods anyhow.

        The exact same scenario is happening with food. Oops! You might make do without a flat screen TV or i Pad but you need your daily calories.

        The whole food supply system now depends on i) globalisation, ii) fossil fuel funded transport and iii) corporate control from the seed to the market.

        This is not a good situation to be in. I firmly believe that food security will become a major issue in many parts of the world that have never had to think about food production.

        As farmers continue to struggle due to rising costs and as energy (fuel) costs soar then food will continue to get more & more expensive or start to get scarce. The former is happening now. The latter IMO is inevitable.

        Many towns & cities are now surrounded by the farming equivalent of the Rust Belt. That is farms being reclaimed by nature or converted into horse establishments or high end weekend “country” estates.

        It might not be long when many town people are going to wish the once vibrant farming communities that once ringed their cities were back.

        • Todd says:

          I’ve personally experienced the “get bigger or get out” reality. We faced a decision at the time to either spend a significant amount of money to add greenhouse space or shut down. We were making “day wages” on our operation but that didn’t cut it so we shut down. In addition to the cost, we would have had to “hire” employees and then we’d have had another layer of crap.

          It’s even worse today for the small producer. We personally know one small grower who couldn’t afford to continue his organic certification. Locals know he does it right but he simply couldn’t afford to be certified organic.

          Further, many upcoming Fed and state regulations are going to hit the small grower really hard from a financial perspective. Ultimately, they are going to be put in a position similar to farms that sell unpasturized milk; you wait for the “heat” to show up and hope it doesn’t happen. It’s the worst of all worlds.

          Todd

  9. Arthur Robey says:

    This article in PsyOrg is interesting from a food availability and energy point of view.

    A newly engineered yeast strain can simultaneously consume two types of sugar from plants to produce ethanol, researchers report.

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