Food Shortages and Food Inflation: Malthusian future?

Image: Food skyscraper of the future?


Although Malthus has long been laughed at by those convinced that technology will solve any problem, in any finite system, one must reach some sort of system limits, as demand for a resource outstrips that method of producing it.

Although it may happen for slightly different reasons than postulated under the Malthusian catastrophe scenario, it appears this is starting to happen with food and will soon be found in a supermarket near you, via food inflation.

There is a confluence of forces that make serious food inflation, at the minimum, particularly likely over the next five to ten years:

Factor number one is the bee die back, and the effect it is likely to have on food prices over the next few years, as yields are curtailed due to a reduction in pollination. One economist figures that this will put over $15 Billion in North American crops at risk, all adding to potential for food inflation.

Factor number two is the growing wealth of emerging markets, and their propensity to emulate a western-style meat-heavy type diet, as wealth grows. This puts increased pressure on grain crops in particular, as it takes anywhere from about 5-20 pounds of grain to produce a single pound of meat. As large populations in China and India move further away from vegetarian or semi-vegetarian type diets, this strains limited global food stores even further, adding to food inflation.

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Factor number three is the changing climate. Scientists have long known that food yields can come under pressure in at least two ways as global temperatures climb. Firstly, at higher temperatures, some plants - despite ample water - either cease production, or lower production. In either case, yields are lowered. Secondly, changing climate results in more extreme weather, including droughts, hurricanes, extreme rainfall etc. Total yields are obviously reduced under those circumstances too. (Alt citation, PDF)

This was recently brought home to me by an Australian cousin, who laments the drought his country has been going through for some time: he tells of kids in some parts of the country now entering high school, who have never seen rain.

Factor number four is the number of lunatic politicians, in their bid to never offend anyone while running for office, avoid telling the truth about ethanol from corn: it's doubtful it actually produces any additional (net) energy after it's energy inputs are calculated, AND it's going to (in fact, already has) further increased food costs.

I watched a shameful 20/20 series where every single presidential candidate at a town-hall type meeting claimed that ethanol was part of the solution, rather than more likely to contribute to an even bigger problem. Whatever happened to a "give 'em hell", Harry Truman style candidate? Are they all too meek, too bland, and too gutless for even one of them to stand up and tell the truth? And the truth is, is that ethanol, bio-diesel, or any other fuel made from food sources is only going to add to food inflation, possibly to serious food inflation.

One article also discusses many of these issues and interestingly points out that China, to feed itself, should be adding a quantity of arable land equal to Maine, every year. Instead, it has lost that amount every year over the past decade. Another article, in the respected Popular Science magazine, discusses these looming food questions.

There are, of course, always those head cases who are convinced that technology will solve any problem. However, increasing technological solutions have coincided with increased energy demands and, in a global warming world, one of these trends most likely has to give.

I read a recent article suggesting that food skyscrapers may be the way of the future - but these won't be coming any time soon and, due to costs, may end up with all those other strange Popular Science ideas that never see the light of day due to cost or technical issues that can't reasonably be overcome.

The Confused Capitalist will provide some practical and investment advice on how to deal with this over the coming while.

More reading sources:

• Vertical Farming Dream


• Deeper Thinking About Serious Issues


• Making realistic interim changes


• For the more personally ambitious


• What changes are really needed & how to go about it

JW

The Confused Capitalist

Next Fed Move will be up, not down! Inflation not quelled yet.

After an extended break to see my brother get married in Los Angeles, including a visit down to Sea World and Disneyland, some time away for training, and just a general break, the Confused Capitalist is back.

Note: If you're on a blog aggregator, you can visit The Confused Capitalist here for additional articles and exclusive content!

The Confused Capitalist has been busy reading the tea leaves, as well as a very interesting book on the process of "intuitive" thinking, and in the Blink of an eye, realized that the Fed will have to move interest rates up, rather than down.

Inflation is not yet quashed, and inflation around the world also appears to be moving towards the upside. A declining US currency won't help things either, as inflation will be "imported" in addition to domestic pressures. The Fed will most likely begin to move rates up in nine to 15 months, and it won't just be 25 basis points until they stop. Where they will stop, I'm not certain, but it will be at least 50 basis before they pause again, but possibly as high as 200 basis points, looking out over the next 24-36 months.

Well, that's my tea leaves reading for this quarter. These days sure feel like the 1970s in many ways.


JW

The Confused Capitalist

Editorial: Why a Responsible Fed Won't Lower Rates Anytime Soon.

Notwithstanding the perceived subprime "crisis", a responsible Fed can't lower rates anytime soon. Why?

Because the consumer is finally being told, in no uncertain terms, to smarten up, stop spending more money than you have, and save a little bit. With this message, (and a puncturing of the home-ATM cash-machine) inflation will finally begin to get tamed.

Any loosening of the money supply at this point, while mitigating the short-term damage that will soon become evident in bloated housing markets, will only move that day of reckoning into the future. A future time which which would then have bleaker, more uncertain and more unstable fundamentals, from which to try making essentially the same maneuver.

No, dear readers, this is the medicine that great-great-grandmother used to force down great-grandmother's throat: a nasty-smelling, foul-tasting, herbal concoction that nearly gagged the dear girl. But medicine that helped the patient recover sooner, and more robustly.

To lower interest rates at this time is the equivalent of turning up the heat in the house, so that the feverish patient may feel comfortable. Foolish. Understandable to some, with the child whining so loudly but, all the same, foolish.

And a responsible Fed just won't do that.


JW

The Confused Capitalist

Ring, ring. Ring, ring. (Hello, is anybody there?)

And who says they don't ring a bell at the market top (or close to it)!

I think that the US market is very close to a top for the next several years, and it isn't because stocks are overly expensive. There's been lots of research showing that, relative to recent historical norms, stocks remain at roughly fair value (I'd define fair value as within 10% of its perfect actual value). The PE ratio of the S&P500 at about 18 or 19 isn't something to get alarmed about.

What is, is the rising interest rates. This will drain liquidity from the market as rates will be - I predict - rising far above that foreseen by most commentators today. That's because interest rates aren't just used to control inflation - but to support a weakened currency and attract needed outside financing, when a deficit situation exists when internal lenders no longer buy enough bonds to support the deficit (i.e. the USA today). In two years, I predict that a 30 year fixed mortgage will be in the 8.5% to 10.5% range, between 200 to 400 basis points higher than today.

Secondarily, the downdraft from the real estate market (expect that to be a serious force about 12 months from now), will also drain liquidity from stocks, as some owners of investment or secondary real estate, will partially cash out of the stock market to support their increased real estate loan payments. Others will sell their investment or secondary homes, but with the stock market also in a secular decline, won't redeploy their additional capital (if that exists for them), into the stock market. They'll keep it on the sideline in CDs and other savings intruments that will have relatively attractive yields.

Finally, the yields of savings instruments will continue to become more attractive, and will also compete for cash that recently was almost automatically deployed into the stock market, or real estate.

Real estate and the stock market returns will be well correlated over the next three to five years. Negative returns. Or am I the only one that hears the bell ringing?


JW

The Confused Capitalist

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Lock down your ARMs!

Adjustable Rate Mortgages - it's not just a one way street!

Some think that adjustable rate mortgages are the greatest thing since sliced bread and point to studies that show they would have save the typical mortgage consumer thousands of dollars annually over the past several decades. While true, it these also ignore fundamental truth - that interest rates were on a secular decline, resulting from high interest rates and the inflation of the 1970s, which took almost a full decade to reign in. These studies almost invariably ignore the fact that if you'd locked in your mortgage in the late 1960s or early 1970s, you would have saved thousands annually in borrowing costs, as the then secular trend was, just as now - rising rates.

Looking forward, many think that the Fed only has to worry about trailing inflation, and are hopeful that the number of increases will be limited. "One and done" was the hue and cry from this crowd, before "Gentle Ben" of the Fed dissuaded investors of that hopeful notion. I think the new rallying cry might be "Give Two it's due, then we're through!" Unfortunately, it won't end with two more increases either.

We in Canada were in the same unfortunate position just a decade and a half ago, wherein inflation was muted, but our deficit was not having in 1992, reached a all-time historical high. This led to higher and higher rates as we sought more and more foreign capital to finance our accumulated debt and deficit.

Unfortunately, the US is now in the same shoes, as a small posting by Random Roger points out over here. This, my friends, is the sign of things to come and can only be overcome by raising interest rates higher and higher (thus defending the currency, and attracting the dollars necessary to finance the debt). Lastly, don't forget that almost all developed nations are on a credit-tightening cycle - just when the US most needs to borrow. This increased cost of borrowing will, of course, help balloon the deficit even more. A "dis-virtuitous circle" has been created, which will take ten to twenty years to correct.

So go ahead and mark my prediction down on a calendar here - in two to three years, ARM mortgages will be higher than today's 30 year fixed, and much higher in five to seven years. My advice is to take your lumps now folks, lock down the ARMs, and - very shortly - you'll be happy you did.


JW

The Confused Capitalist