Volume 11, Number 1 October 19, 2007
The "Perfect Storm" hits grain industry
by Dr. Ridgely Abdul Muímin Muhammad
According to a USA Today October 16th article by Sue Kirchhoff entitled, "World Events Work Against Grain Buyers" a set of market, weather and grain demand events have produced the "tightest world grain stocks in about 30 years". Reduced grain stocks "...are contributing to rising food inflation, fueling worries about food shortages in some countries and straining international aid budgets..." The article continues by saying that "...prices are being pushed up by bad weather in a host of countries, surging world demand and a drive in the USA and abroad to devote more acres to corn for ethanol production, which has tightened supplies of some grains and tied crop prices more closely to energy prices."
The decline in the value of the dollar has also contributed to surging international demand for U.S. grain. The falling dollar makes U.S. grain more affordable for foreign buyers while at the same time making foods imported to the USA more expensive to buy.
Wheat touched $9.61 a bushel on Chicago futures markets in late September -- doubling from the previous year. Although the price of wheat could fall by harvest time in the spring of 2008, many analysts do not believe that it will fall back to the $4 per bushel prices in 2007 and surely no where near the $2 per bushel prices that the farmers in Southwest Georgia have been facing from 1998 through 2006.
The increased wheat prices have caused the rise in the price of bread and grain fed animals and their products. In the USA, the average price for a loaf of bread is up 11% over the past 12 months. Ground beef has risen 6%, chicken is up 9%, and eggs are up 31%. Overall U.S. food inflation is running 5.6% so far this year, compared with 2.6% for all of 2006. Consumers spend about 10% of take-home pay on food compared to only 6% ten years ago. The American consumer is on the way to increasing the proportion of their income devoted to food to the world average of 26%.
World grain stocks are on pace to be the lowest since the U.N. Food and Agriculture Organization began keeping track 30 years ago, even as consumption increases in emerging economies -- including demand for grain-fed livestock -- and population growth continues. In the mean time there is no magic technology in sight to increase crop yields. Water supplies are being strained. The ethanol market absorbed more than 15% of the U.S. corn crop in 2007 and could take 30% next year, if all the ethanol plants now under construction come on line. Ethanol prices have recently fallen due to problems in transportation and a glut of product.
The current crisis in grain stocks have a historical basis and a political basis, not just short term supply and demand relationships. Food has been used as an economic weapon since WWII to destroy Third World economies under the guise of food aid. American agriculture was revolutionized during and after WWII through increased mechanization and fertilization. The same factories that produced bombs using nitrogen during WWII were turned into fertilizer factories after the war. The use of artificial nitrogen fertilizers greatly increased the yields of wheat and corn. This increased supply prompted the food industry to develop a demand for meat which would eat up a lot of the feed grains.
During the 1950s Africa and other Third World countries were clamoring to break from beneath colonial rule and establish independent economies. The U.S. used her surplus grains to destroy these emerging agricultural based economies by dumping cheap grain into the cities of these countries while their local farmers were trying to bring their products to market. The farmers finally gave up and moved to the cities themselves looking for employment, pushing their countries further into dependency on the west.
By the 1980s and 90s the American farmer had served Americaís economic warriors well and were no longer needed. America first got rid of her Black farmers by denying them the farm price subsidies that she gave to her white farmers and by denying the Black farmers access to capital that they needed to enter the modern world of agri-business.
In 1996, a year after the Million Man March and the Nation of Islamís return to farming, the Congress of the United States passed what was called "The Freedom to Farm Bill". The American farmers called it the "Freedom to Fail Bill" because this bill reduced the farm subsidies on major commodities such as wheat, corn, soybeans and cotton. By 1999 prices for these major commodities were almost half of what they were in 1996 and back to what prices were in the 1970s. In the mean time the price of tractors and other production inputs were three to four times higher than they were in the 1970s. Now Black farmers and small white farmers had no recourse but to sell out to the much larger white farmers. The big white farmers were taking a huge risk and were looking for anything that would cut production costs. Along comes Monsanto and other big chemical and biotech firms with genetically modified corn, soybeans and cotton which promised to reduce production costs while increasing yields.
However, Europe and Japan rejected the genetically modified corn and soybeans from America and even lowly Africa became suspicious of these untested genetic innovations and countries like Zimbabwe rejected these crops as well. Americaís big farmers were now being stripped of foreign markets so the government steps in and revitalized the plan for large scale ethanol production which was proposed by the Carter administration in the 1970s. As the USA Today article indicates there are some demand problems developing in the ethanol market. But farmers have already shifted out of wheat into corn. Now to shift back into wheat production becomes even more risky because wheat seed prices have doubled and there are already reported seed shortages in the Midwest due to reduced spring harvests precipitated by unusual floods over long time periods.
The Honorable Minister Louis Farrakhan warned Bush to get out of Iraq or suffer the consequences of Godís wrath. And in April of 2004 he said "watch the weather". Now the unusual weather, manís greed, his appetite for meat and cheap energy along with the U.S. using food as a economic weapon plus her disrespect for nature could be the "perfect storm" to push the world to the brink of famine and anarchy.