entire article: http://www.sirchartsalot.com/article.php?id=68
Agri-flation on the Warpath,
Rising prices of agricultural commodities including wheat, soybeans, corn, and milk have helped stoke global inflation. This trend, referred to as "Agri-flation," shows up in prices for farm products which reached record levels in 2007. A Food Commodity Index, which tracks a dozen agricultural raw materials used by food companies including wheat, barley, milk, cocoa and edible oils, show cost inflation of 21% this year – the biggest increase since the index started almost a decade ago.
In the past 12-months, the price of milk futures have soared 70% on the Chicago Mercantile Exchange, and in most of Europe, is up 50% this year. Why the sudden upward explosion? First, a domestic shortage of nonfat dry milk and strong international demand for protein has sent powder prices skyrocketing. Second, strong demand for corn for ethanol purposes has resulted in higher feed costs for cows. Farmers have responded by raising milk prices.
Third, China's demand for milk is soaring by 25% per year, and China is now consuming about 30% of the world's milk output, much of it from Europe and mainly from Germany. Imports of dairy-related products have surged, as per capita consumption has more than doubled since 2000, a level of increase that Chinese domestic production has not been able to match. A drought in Australia and New Zealand, the world's largest milk-exporting region, has also stoked higher prices.
Wheat futures Soar to all-time highs,
Wheat jumped to a record $8.75 per bushel on the Chicago Board of Trade, up 45% since the beginning of July on signs of strong demand for dwindling global supplies. Global consumption has exceeded production for the seventh time in eight years. As of August 23rd, US farmers sold roughly 95% percent of what the government estimates will be sold in exports all year – far ahead of the last year's pace, when the country had sold just 27% of target exports at this time. Wheat exports have also been aided by a sharply lower US dollar.
The US Department of Agriculture projects that world wheat stocks will drop to 114.8 million tons by the end of the 2007-08 marketing year, the lowest since 1982, following poor weather earlier this year in parts of Europe, the United States, and in several exporting countries including Canada, Australia and Argentina. Australia, the world's #2 wheat producer said the size of its wheat crop will fall to 15.5 million tons, from its previous forecast of 22 million tons in June.
More global demand for corn to produce ethanol, which is now blended with gasoline, helped push corn prices to a 10-year high in February. In the US, ethanol is made from corn unlike Brazil, which uses sugar cane. As of November 2006, 107 ethanol bio-refineries have been built in the US, with the capacity to produce 5.1 billion gallons of ethanol per year. It is estimated that by May 2008 another 56 refineries will be constructed producing an additional 3.8 billion gallons of new capacity.
Higher wheat prices are driving up the price of corn, which is even more sought-after as an animal feed when wheat becomes too pricey a substitute. But a rise in corn prices can increase the cost of its derivatives like corn syrup, which is a staple for a variety of foods, from soft drinks to wheat bread. US corn also feeds chickens, hogs and cattle, which means a rise in prices for meat, eggs and dairy.
And as China's 1.3 billion consumers change their eating habits, and start eating beef and pork and fast-food hamburgers and chicken nuggets instead of rice, China's demand for corn and livestock can only go upwards. In China, beef consumption has gone up by 26% since 2000, and pork, which was already popular, rose by 19 percent. Even in India, where much of the population is vegetarian, chicken consumption has almost doubled since 2000.
Soybeans Soar on strong Global bio-fuel demand
Soybean prices are expected to hit their second-highest average mark ever this year, and highest since 1983, says the US Agriculture Department. Soybeans are used to make bio-diesel fuel, a renewable alternative to diesel fuel, where demand has increased more than 1,200% in the past three years, showing how US truckers are being drawn into the alternative-fuels frenzy along with the auto industry.
Most bio-diesel is made from soybeans. It can be burned pure or as a 20% blend in diesel fuel. The bio-diesel industry in the United States consumed about 202.54 million pounds of soybean oil in April, a huge jump from the 96.28 million pounds refined into bio-diesel in April 2006. Of the 148 commercial bio-diesel plants in the United States, about 63 use soybean oil as the primary feedstock, according to the National Bio-diesel Board.
Much of the surge in soybeans to $9.60 /bushel is linked to the Bernanke's Fed's devaluation of the US dollar. The European Union wants bio-diesel to make up 6% of transportation fuels by 2010 to reduce dependence on crude oil, and a stronger Euro provides greater purchasing power to buy soybean oil, which has soared to a 23-year high. China's palm-oil imports rose 27% to 1.6 million metric tons in the first four-months of 2007 from the year- earlier period.
At the same time US farmers are switching more acreage from soybeans to corn next year. Farmers told the USDA in March, they would increase corn plantings 15% to 90.5 million acres this year from 2006, the most since 1944, and cut soybean acreage 11% to 67.1 million, the smallest since 1996. Global oilseed production for 2007-2008 is projected at 399 million tons, down 5.4 million tons from 2006-2007, the first year-to-year decline since 1995-1996, the USDA said.
Soaring Food prices send China's Inflation rate to 10-year high
Soaring food prices have propelled China's consumer inflation to 6.5% its fastest pace in 11-years. But judging from the bubble in Shanghai red-chips, Chinese inflation is probably running in the double digits. The ruling Communist Party is aware that raging inflation has touched off social unrest in China in the past. Inflation was driven by an 18.2% leap in the cost of food, which accounts for a third of the consumer price basket.
Meat prices rose 49% in August from a year earlier, reflecting a shortage of pork, China's staple meat. The cost of eggs has risen 27% since last summer, chicken by 20%, and grain prices have climbed by 6.4 percent.
China has 20% of the world's population but only 7% of its land is arable. China has lost 6% of its arable land in the past decade to factories and houses, airports and roads in the last 20-years of breakneck industrial growth. China became a net importer of food in 2004, and just as China's growth has fueled the explosion in world prices for crude oil, iron ore, copper, steel and shipping, the impact of greater Chinese demand for food, particularly beef and pork, is just starting to be felt.
The People's Bank of China (PBoC) raised interest rates for the second time in less than a month on Sept 13th, amid soaring food prices, excessive bank lending and massive bubbles in the property and stock markets. The PBoC lifted the one-year benchmark deposit rate by 27 basis points to 3.87%, the fifth baby-step increase this year. However, the PBoC deliberately pegs the one-year bank deposit rate far below the inflation rate, for a negative rate of return, encouraging savers to shift money from bank deposits and into the Shanghai and Shenzen stock market.
Beijing is expected to continue raising interest rates and lifting the reserve rate requirement in the coming months as well as issuing more special Treasury bonds to drain liquidity from the financial system. However, Chinese 7-year T-bond yields are stuck at 4.15%, highlighting a system flush with liquidity, and further baby-step rate hikes won't put the PBoC ahead of the inflation curve anytime soon
Global Shipping Rates go Ballistic
In addition to higher prices for raw materials and grains, global shipping rates are going thru the roof, with shippers having little difficulty passing through their increased costs to importers. The Baltic Dry Index, which measures dry bulk shipping rates on 40 shipping routes, for commodities such as coal, iron ore, cement, grains and sugar climbed to an all-time high of 8,477 last week
The global economy has expanded by 5% or more for the past four years, its best performance since the early 1970's, and ship owners and operators have enjoyed the strongest marine transportation market in three decades. As the middlemen of worldwide trade, shipping companies moved 90% of the $10.5 trillion in import and export volume sent across the oceans in 2006, up 60% from 2003. The Baltic dry index is trading close to 10 times its lowest level hit in November 2001.
By Gary Dorsch,
Editor, Global Money Trends newsletter
http://www.sirchartsalot.com
Agri-flation on the Warpath,
Rising prices of agricultural commodities including wheat, soybeans, corn, and milk have helped stoke global inflation. This trend, referred to as "Agri-flation," shows up in prices for farm products which reached record levels in 2007. A Food Commodity Index, which tracks a dozen agricultural raw materials used by food companies including wheat, barley, milk, cocoa and edible oils, show cost inflation of 21% this year – the biggest increase since the index started almost a decade ago.
In the past 12-months, the price of milk futures have soared 70% on the Chicago Mercantile Exchange, and in most of Europe, is up 50% this year. Why the sudden upward explosion? First, a domestic shortage of nonfat dry milk and strong international demand for protein has sent powder prices skyrocketing. Second, strong demand for corn for ethanol purposes has resulted in higher feed costs for cows. Farmers have responded by raising milk prices.
Third, China's demand for milk is soaring by 25% per year, and China is now consuming about 30% of the world's milk output, much of it from Europe and mainly from Germany. Imports of dairy-related products have surged, as per capita consumption has more than doubled since 2000, a level of increase that Chinese domestic production has not been able to match. A drought in Australia and New Zealand, the world's largest milk-exporting region, has also stoked higher prices.
Wheat futures Soar to all-time highs,
Wheat jumped to a record $8.75 per bushel on the Chicago Board of Trade, up 45% since the beginning of July on signs of strong demand for dwindling global supplies. Global consumption has exceeded production for the seventh time in eight years. As of August 23rd, US farmers sold roughly 95% percent of what the government estimates will be sold in exports all year – far ahead of the last year's pace, when the country had sold just 27% of target exports at this time. Wheat exports have also been aided by a sharply lower US dollar.
The US Department of Agriculture projects that world wheat stocks will drop to 114.8 million tons by the end of the 2007-08 marketing year, the lowest since 1982, following poor weather earlier this year in parts of Europe, the United States, and in several exporting countries including Canada, Australia and Argentina. Australia, the world's #2 wheat producer said the size of its wheat crop will fall to 15.5 million tons, from its previous forecast of 22 million tons in June.
More global demand for corn to produce ethanol, which is now blended with gasoline, helped push corn prices to a 10-year high in February. In the US, ethanol is made from corn unlike Brazil, which uses sugar cane. As of November 2006, 107 ethanol bio-refineries have been built in the US, with the capacity to produce 5.1 billion gallons of ethanol per year. It is estimated that by May 2008 another 56 refineries will be constructed producing an additional 3.8 billion gallons of new capacity.
Higher wheat prices are driving up the price of corn, which is even more sought-after as an animal feed when wheat becomes too pricey a substitute. But a rise in corn prices can increase the cost of its derivatives like corn syrup, which is a staple for a variety of foods, from soft drinks to wheat bread. US corn also feeds chickens, hogs and cattle, which means a rise in prices for meat, eggs and dairy.
And as China's 1.3 billion consumers change their eating habits, and start eating beef and pork and fast-food hamburgers and chicken nuggets instead of rice, China's demand for corn and livestock can only go upwards. In China, beef consumption has gone up by 26% since 2000, and pork, which was already popular, rose by 19 percent. Even in India, where much of the population is vegetarian, chicken consumption has almost doubled since 2000.
Soybeans Soar on strong Global bio-fuel demand
Soybean prices are expected to hit their second-highest average mark ever this year, and highest since 1983, says the US Agriculture Department. Soybeans are used to make bio-diesel fuel, a renewable alternative to diesel fuel, where demand has increased more than 1,200% in the past three years, showing how US truckers are being drawn into the alternative-fuels frenzy along with the auto industry.
Most bio-diesel is made from soybeans. It can be burned pure or as a 20% blend in diesel fuel. The bio-diesel industry in the United States consumed about 202.54 million pounds of soybean oil in April, a huge jump from the 96.28 million pounds refined into bio-diesel in April 2006. Of the 148 commercial bio-diesel plants in the United States, about 63 use soybean oil as the primary feedstock, according to the National Bio-diesel Board.
Much of the surge in soybeans to $9.60 /bushel is linked to the Bernanke's Fed's devaluation of the US dollar. The European Union wants bio-diesel to make up 6% of transportation fuels by 2010 to reduce dependence on crude oil, and a stronger Euro provides greater purchasing power to buy soybean oil, which has soared to a 23-year high. China's palm-oil imports rose 27% to 1.6 million metric tons in the first four-months of 2007 from the year- earlier period.
At the same time US farmers are switching more acreage from soybeans to corn next year. Farmers told the USDA in March, they would increase corn plantings 15% to 90.5 million acres this year from 2006, the most since 1944, and cut soybean acreage 11% to 67.1 million, the smallest since 1996. Global oilseed production for 2007-2008 is projected at 399 million tons, down 5.4 million tons from 2006-2007, the first year-to-year decline since 1995-1996, the USDA said.
Soaring Food prices send China's Inflation rate to 10-year high
Soaring food prices have propelled China's consumer inflation to 6.5% its fastest pace in 11-years. But judging from the bubble in Shanghai red-chips, Chinese inflation is probably running in the double digits. The ruling Communist Party is aware that raging inflation has touched off social unrest in China in the past. Inflation was driven by an 18.2% leap in the cost of food, which accounts for a third of the consumer price basket.
Meat prices rose 49% in August from a year earlier, reflecting a shortage of pork, China's staple meat. The cost of eggs has risen 27% since last summer, chicken by 20%, and grain prices have climbed by 6.4 percent.
China has 20% of the world's population but only 7% of its land is arable. China has lost 6% of its arable land in the past decade to factories and houses, airports and roads in the last 20-years of breakneck industrial growth. China became a net importer of food in 2004, and just as China's growth has fueled the explosion in world prices for crude oil, iron ore, copper, steel and shipping, the impact of greater Chinese demand for food, particularly beef and pork, is just starting to be felt.
The People's Bank of China (PBoC) raised interest rates for the second time in less than a month on Sept 13th, amid soaring food prices, excessive bank lending and massive bubbles in the property and stock markets. The PBoC lifted the one-year benchmark deposit rate by 27 basis points to 3.87%, the fifth baby-step increase this year. However, the PBoC deliberately pegs the one-year bank deposit rate far below the inflation rate, for a negative rate of return, encouraging savers to shift money from bank deposits and into the Shanghai and Shenzen stock market.
Beijing is expected to continue raising interest rates and lifting the reserve rate requirement in the coming months as well as issuing more special Treasury bonds to drain liquidity from the financial system. However, Chinese 7-year T-bond yields are stuck at 4.15%, highlighting a system flush with liquidity, and further baby-step rate hikes won't put the PBoC ahead of the inflation curve anytime soon
Global Shipping Rates go Ballistic
In addition to higher prices for raw materials and grains, global shipping rates are going thru the roof, with shippers having little difficulty passing through their increased costs to importers. The Baltic Dry Index, which measures dry bulk shipping rates on 40 shipping routes, for commodities such as coal, iron ore, cement, grains and sugar climbed to an all-time high of 8,477 last week
The global economy has expanded by 5% or more for the past four years, its best performance since the early 1970's, and ship owners and operators have enjoyed the strongest marine transportation market in three decades. As the middlemen of worldwide trade, shipping companies moved 90% of the $10.5 trillion in import and export volume sent across the oceans in 2006, up 60% from 2003. The Baltic dry index is trading close to 10 times its lowest level hit in November 2001.
By Gary Dorsch,
Editor, Global Money Trends newsletter
http://www.sirchartsalot.com