This isn’t good news for anyone worried that soaring food prices are fueling global inflation.
Today, February 9, the U.S. Department of Agriculture lowered its forecasts of global wheat inventories because of falling production in the Ukraine. Global stockpiles will total just 177.77 metric tons on May 31, 2011, the USDA now projects. That’s down 0.1% from the agency’s forecast of 177.99 million metric tons in January. Projected wheat production is down about 2% in the Ukraine from last month’s forecast.
A report like this stirs memories of 2010 when drought cut production in Russia and Eastern Europe. But the real problem is that the world’s stocks of wheat are at low levels and stock piles of the high-quality milling wheat needed for bread may be extremely tight. Nobody is quite sure what part of global wheat stock piles is high-quality milling wheat and that’s got the market’s knickers in a twist.
41justice:
It’s likely that farm subsidies will be scrutinized as never before. There’s no doubt that government has caused distortions in the commodity, equity, and bond markets by its ethanol policy, currency debasement, and federal debt.
I, too, would like to see more stable government policies that didn’t misallocate capital.
Government can’t spend at this level indefinitely. The big question is where to invest given these crazy governmental policies.
If Obama would end the ethanol mandate and the subsidies, the farmers would not produce so much corn. About 25% of the corn goes to producing ethanol. Farmers would then switch back to soy beans and wheat. This would save billions and allow food prices to return to normal levels, Ethanol was a boondoggle from the beginning but Obama made it worse. Impeach Obama!
@ faroos:
One could buy a commodity ETF with that includes wheat as a component, although many of these have been run up already. For a longer term play, one could short the stocks of companies that use wheat as a main input (food producers). It is likely that they will not be able to pass on the entire input cost increase to consumers, since consumers are not in great shape, by and large. This will result in margin compression for some food producers.
so what to do about it,,
fertilizing companies are long term solution but what is the neat term beneficiary of this situation.