Food, grain, oil, drought, and other stuff,...

[topcropper]

World grain ending stocks continue to decline. Last report I read was grain at 25 year low supplys, however 25 years ago the population and consumption was almost half.

The general consensus among scientists was that global warming, while resulting in obviously hotter temperatures, would also be accompanied by higher carbon dioxide levels and increased rainfall which would more than counteract the higher temperatures, meaning that food production was never at risk. Higher carbon dioxide levels are good for plant growth.

Some computer models are now suggesting that there could be an overall general drying effect instead of wetter. Here is one view,..

http://www.monbiot.com/archives/2006/10/10/the-water-boom-is-over/#more-1019

This last seasons wheat crop has been lower all around the world. Canada will be the only wheat exporting country that will produce more wheat this year than last. All the others will be way below, and as a result, wheat prices, and all other grains as well have taken off. Drought has reduced crop yields in most of the big grain producing areas. Even England has been effected and some friends I know who were there a few months ago couldn't believe how hot and dry and shrivelled up the normally high yielding crops were. In london at the time there was not enough water to keep the grass green in the parks, so they felt like they were in Australia, not England.

World grain prices just needed a tipping point. Everyone knew that stocks were declining. The tipping point has been the failure of the Aussie wheat crop. Australia is generally the worlds second biggest exporter.

This is all probably some strange coincidence. However, what if it is not?

Am I worried? For this year I am. My cashflow will be terrible. I have my share portfollio that I may have to liquidate, but that is what it is there for. It has always been a safety factor for me. To give some diversification. In the long term it will be good for farmers. Economics 101. Anything in oversupply is not worth very much and is taken for granted. Maybe farmers will soon be more highly regarded. Grain prices generally stay high for a few years after a big spike, and this is a big one. Farmers in general should do well if they can stay in business. When food is in oversupply it is worth almost nothing. When it is in demand, farmers can name their price. There has been an excess of food production for 50 years, ever since the green revolution when fertilizer and herbicides and pesticides and big tractors [in other words OIL, it's all made from fossil fuels] were introduced.

Food has been taken for granted for too long. People just go to the supermarket and get what they want, at about the cost of production, or if looking at the big picture, and soil erosion, nutrient depletion and the rest, at way below cost of production. A lot of irrigation water has come from fossil water that has taken millions of years to build up. This is coming to an end in a lot of areas.

I know rice and cotton producers get critisized by a lot of people, but I do feel for them in a small way. Water is being taken away to be used for more profitable persuits. Like growing grapes LOL and watering golf courses. One tonne of rice will feed a lot of people as will a bail of cotton clothe the masses. How much nourishment is in one thousand bottles of wine? And not much profit now either at $2 a bottle!

Ethanol production has taken off in the US. It was so profitable that ethanol plants were being payed off in two years. Super low grain prices ment that the energy levels in grain was at below cost. Grain production was subsidised as well making it so cheap. What a joke! It will all be different now for a few years. A lot of people [not on this knowledgable forum though] think that as oil runs out we can just replace it with ethanol or biodiesel. Just plant a heap of wheat or corn. Yeah, right! Crops grown from oil.

Just some points to ponder.

See ya's.

 

[duncan_m]

Sobering.. thanks for posting that, so well written and very thoughtful... it reasonates with concerns I also have about oil and property.

 

[Macca]

Hi, TC,

Yes, it seems we have arrived at the time when we need to actually think long term with our water management.

Simple things in the cities would make such a huge difference, our coastal cities allow billions of litres a year to flow into the ocean. Overseas cities not on the coast have managed their water for years, we just waste ours.

For example, if Sydney was to catch rain water in tanks and use in the toilet we would save billions a year. I know it is going to happen in new houses but if instead of building a desalination which runs on oil and is quite expensive, they were to give grants to people to retrofit water tanks to existing homes it is all free, renewable and non polluting.

The outflow from sewerage works in the western suburbs currently goes into the Nepean/ Hawskbury system and into the ocean. Could we not treat it further and put some into the Nepean and the rest into the Blue Mountains and let it find its way westward into the rivers.

Relatively simple things which in time would help tremndously IMO.

here's wishing you grey skies and damp feet

 

[GIDDO]

Hi, TC,
edited

For example, if Sydney was to catch rain water in tanks and use in the toilet we would save billions a year. I know it is going to happen in new houses but if instead of building a desalination which runs on oil and is quite expensive, they were to give grants to people to retrofit water tanks to existing homes it is all free, renewable and non polluting.

The outflow from sewerage works in the western suburbs currently goes into the Nepean/ Hawskbury system and into the ocean. Could we not treat it further and put some into the Nepean and the rest into the Blue Mountains and let it find its way westward into the rivers.

Relatively simple things which in time would help tremndously IMO.

here's wishing you grey skies and damp feet

Some good thoughts here.


As usual, the population (or at least some of them) is about a million miles ahead in their thinking of our country's so called leaders.

Why are the politicians so far in arears of what the country's real needs are?
None of them are leaders in my opinion.

 

[topcropper]

Chart of wheat prices in Chicago CBOT. Mostly caused by the failing Australian crop, although lower world grain ending stocks in general.

http://futures.tradingcharts.com/chart/CW/W

See ya's.

 

[FrankGrimes]

Who is the biggest producer? The US?

 

[topcropper]

Who is the biggest producer? The US?

Of wheat? The US is by far the biggest exporter. Of all grains too [not rice though, only third biggest rice exporter]. The US grows 10 times the amount of corn that Australia grows of wheat. The US is also easily the worlds biggest corn grower, but probably not of wheat. Perhaps China grows more tonnes of wheat than the US, but they eat it all themselves.

Australia and Canada swap places each year as the second biggest wheat exporter.

I'll see if I can google up some more accurate figures.

Cheers.


ps. Here is a quick article and chart showing wheat exporters and importers. I'm not sure why they have Canada and Australia as the same though.
http://www.ers.usda.gov/Briefing/Wheat/trade.htm

 

[topcropper]

Who is the biggest producer? The US?

As far as total wheat production goes, these are 2003 figures, it is...

China,....86 million tonnes.
India,.....65 million tonnes.
US,........63 million tonnes.
Russia,....34 million tonnes.
France,...30 million tonnes.
Australia..25 million tonnes.


Total corn production figures are, in 2003,...

US,.....260 million tonnes.
China,.114 million tonnes.
Brazil,..47 million tonnes.

Australia grows very little corn.


See ya's.

 

[Andrew_A]

Excellent post. Some food for thought.

When you look at Australia (red) on Google Earth and some European countries (green) it nicely sums up one of our major future problems I think. I understand why cotton producers get a bad rap, I got a look at Cubbie station from the air in 1999 and was amazed by the scale of their water hoarding.

Anyone that thinks biofuels are a replacement for fossils hasn't done their homework imo.

Hmm... Seems Jim Rogers might be right about the softs looking at a chart of Wheat just now, thats some move in 2006.

My personal thought is that the best solution would be more accurate pricing on the consumption of natural resources, it would be better in the long run if we paid $2 or 3$ or more for our petrol instead of $1 even though the short term pain is outside the scope of any political will I think. Also it's quite ridiculuous that our fresh water is priced so cheaply in Australia.

Good luck with the crops, growing up on a station as a kid I appreciate the cycle of drought to flooding rains and how they seem to last forever. Lets hope environment change is only gradual and not that bad.

 

[Aceyducey]

Yah I find it amusing.

Some people claim that ethanol is the solution to the world's future energy needs (replacing oil as it declines).

The crops that would be used to feed the world are instead diverted to transport the world.

Somehow farmers are expected to dramatically lift their production in order to continue feeding an increased world population and simultaneously substitute for more than 84 million barrels of oil used each day (today - usage continues to grow).

They'll have to do this with different rainfall patterns (so certain breadbaskets will be in the process of becoming dust bowls) and without access to oil-based fertilisers and pesticides.

And if we have to divert food production to fuel production it's the faceless hordes of the third world who will go without - why should we care.

Doesn't that sound like a reasonable solution?

NOT

Cheers,

Aceyducey

 

[topcropper]

I wrote this piece less than 12 months ago when grain prices were at decade lows,...

http://www.somersoft.com/forums/showthread.php?p=178909#post178909

I'm not sure if it was Mark Faber or Jim Rogers, but one of them said that when the producers are complaining that they can't make money because a commodity is so low in price, is always the time to buy that commodity, as it will surely go up.

Well I was certainly having a big whinge about grain prices being so low that I couldn't make a profit with current fertilizer and diesel prices.

Today I could sell wheat for $360 a tonne on farm. 11 months ago it would have been $170 on farm.

See ya's.

 

[topcropper]

An interesting article about world grain supply,...

http://www.energybulletin.net/21736.html

Sums up a lot of ranting I've been doing..

"We are still living off the proceeds of the Green Revolution, but that hit diminishing returns twenty years ago. Now we live in a finely balanced situation where world food supply just about meets demand, with no reserve to cover further population growth. But the population will grow anyway, and the world's existing grain supply for human consumption is being eroded by three different factors: meat, heat and biofuels.

For the sixth time in the past seven years, the human race will grow less food than it eats this year. We closed the gap by eating into food stocks accumulated in better times, but there is no doubt that the situation is getting serious. The world's food stocks have shrunk by half since 1999, from a reserve big enough to feed the entire world for 116 days then to a predicted low of only 57 days by the end of this year....."

See ya's.

 

[topcropper]

If people look back through history, it hasn't been economically possible to produce ethanol from grain much of the time. The few times it was, ment that either Oil was too expensive, or grain was too cheap. Grain was very cheap 12 months ago.

Grain takes a hell of a lot of energy to produce. 12 months ago, it was so lucritive to turn grain into ethanol that ethanol plants were being payed off in two years. Now oil has dropped by 20%, and grain has doubled. The economics are all different now, and I say that valuations are more where they should be.

Lets face it, turning grain into ethanol is a bit like generating energy with a diesel motor, using it to pumping water into a dam, to let flow into a hydro electric plant, to generate electricity to run an electric motor, to power a factory, when it would have been far more efficient to just simply use the diesel motor to run the factory in the first place.

Growing grain takes a lot of diesel for machinery and transport. Natural gas for fertilizer. It would be far more efficient to use the diesel and natural gas in the first place rather than the long complicated process of growing grain for ethanol.

Now, ethanol plants are already under construction all through the States due to the incredible profit margins of the last 12 months. They will all need grain to run, and grain is on the rise. It will be interesting to see what happens here.


Having said all that, I love ethanol. It will be good for my business. Corn is going off as people realise the extra grain that will be needed for all the new ethanol plants about to start up.

See ya's.

 

[johnnyb]

For those interested I just came across a recent article about possible breakthroughs in ethanol production. I don't know too much about it, but found it interesting.

Go to http://www.investorsinsight.com/ and near the top of the page is a link to the article. I'm not sure how long that link will work, so apologies if you have trouble viewing it.

John.

 

[Sunfish]

You can subscribe and get John's letters in the mail. I don't read them all but they are thought provoking.

 

[Jaffasoft]

What's a list of wheat companies stock codes on the Australian Stock Exchange that have been hit the hardest and also will they be able to bounce back when they are able to grow more wheat again or does this drought force them to give there export rights to other companies. So is the road to recovery for these companies longer then just simply adding water?

These questions are directed to try ascertain what might be the stocks to invest in when the drought begins to break does anyone think it could be a sensible bet to buy into wheat.

My old man was almost about to give up feeding the sheep any more wheat because he said it's just not worth it, he bought a few tonnage of wheat three weeks before the prices increased dramatically. So the sheep we're going to go to the ship. The last call I had the other day he was saying they got a fair amount of rain down Western Victoria and that the paddocks we're still to muddy to plant. A good problem to have for them I imagine.

 

[topcropper]

What's a list of wheat companies stock codes on the Australian Stock Exchange that have been hit the hardest and also will they be able to bounce back .

I reckon you've already missed the bounce back. Rural stocks have had an amazing run, and what surprised me the most, was that they took off months ago. Months before the drought even looked like breaking. There are some clever share investors out there, and I wasn't one of them. I try to avoid rural stocks. It's not like I really need any more exposure to our crazy weather systems.

A stock like incitec pivot, a fertilizer company has tripled in 6 months. Most others have gone up 20 to 50%.

Also, there is not a lot you can really invest in anyway. Most rural stocks are just servicing the industry. A company like AWB, makes the most in a bumper wheat year, but often in bumper years, the price of wheat is poor. The big gains in the looming agricultural commodities boom will be made by farmers and land owners. When resource prices doubled, did BHP's profit double? No, BHP's profit more than quadrupled. It will be the same with rural commodities. A small increase in price can do incredible things to profit margins.

Australias wheat growers are looking at nearly double the prices of a few years ago. All the rain has only dropped prices marginally, as the real demand is overseas.

See ya's.

 

[Jaffasoft]

Thanks for that! "Missed the bounce back, hey...that's no good". I will keep a watch on those few you mentioned.

Yep, BHP has been a good stock I remember it doesn't seem long ago it was $10 then that take over of Billiton and it took off. It went up another $3 over the last few weeks. It would still be good to jump on BHP anytime I think.

 

[topcropper]

Wheat prices hit record highs on CBOT
6/11/2007, 4:14 p.m. EDT
By LAUREN VILLAGRAN
The Associated Press

NEW YORK (AP) — Wheat prices surged to a record high for 2007 Monday as heavy rains threatened to damage an already tarnished crop.

While rain soaked Midwestern wheat fields on Monday, dry skies stifled the moisture-hungry eastern Corn Belt, sending corn prices above $4 a bushel.

"The rain falling in the U.S. is falling in all the wrong places," said DTN market analyst Elaine Kub.

Bullish traders also ran with a report from the U.S. Department of Agriculture on Monday in which the agency lowered its projections for winter wheat production this month and raised its export projections. Shortfalls in other producing nations will raise overseas demand for U.S. wheat, the USDA said.

Wheat for July delivery jumped 28.4 cents to settle at $5.56 a bushel on the Chicago Board of Trade, after coming just a fraction of a penny within the exchange's maximum daily price swing of 30 cents.

July corn climbed 14 cents to end at $3.96 a bushel, while December corn, which has the largest open interest, finished at $4.06 a bushel. Open interest refers to the number of futures contracts that haven't yet been exercised, expired or fulfilled by delivery.



Yep, the rain is falling in all the wrong places. Lucky this happens, cause if it always fell in the right places, wheat would be nearly worthless. In the US, wheat is being destroyed by constant and unrelenting rain. Drought in parts of Europe.

See ya's.

 

[topcropper]

For those interested I just came across a recent article about possible breakthroughs in ethanol production. I don't know too much about it, but found it interesting.

John.

That article didn't last real long. This is a small part of it, and it is refering to ethanol being made from the whole of the plant, and not just the sugar or grain. The process is referred to as cellulosic ethanol.

_____________________________________________________________________

***" ethanol currently is produced only on an industrial scale from the food product portion of sugarcane (in Brazil) or corn (in the United States). These edible portions constitute a small percentage of the total plant mass, though, which means a large-scale ethanol sector would require massive amounts of agricultural land dedicated to it and would drive up food prices. For example, rising U.S. demand for corn-based ethanol has affected North American corn prices, contributing to the "tortilla" crisis in Mexico.

This means that if the world is truly going to make a go of mass-producing ethanol, it needs to find a way to use more than the edible portions of corn or cane. The potential solution to this problem is cellulosic ethanol, which uses enzymes to break down the whole corn or cane plant.

But cellulosic ethanol generates the other two obstacles.

The first is processing cost. Ethanol production essentially ferments the sugar in the plant, which is why traditional ethanol production deals only with the edible portions, where the natural sugars are concentrated. Cellulosic ethanol production has to first break up the cellulose. (Cellulose is polymerized sugar.) Though the price of doing that has dropped by a factor of 10 in the past decade, it is still around $2.25 a gallon.

The last -- and most critical -- is the issue of gathering the feedstock. Currently the United States has no built-in infrastructure for gathering the 90-plus percent of the corn plant that is not used in the food chain. For cellulosic ethanol to work, this chaff needs to be gathered to centralized locations for processing, and moving such bulk is an energy-intensive task to say the least. Until now, this obstacle has been the true deal killer. Making cellulosic ethanol work in the lab is easy -- making it economically viable on an industrial level brings in supply chain complications that have kept its mass application firmly on the drawing board."***

_______________________________________________________________________
From a farmers perspective, I can't get too excited about this breakthough. If the whole plant is going to be leaving my paddock, instead of just the grain, then my fertilizer use will skyrocket. In the stubble portion, Potassium makes up a very large amount of the nutrients that will be leaving. Potassium fertillizer reserves are not real abundant. By taking away all the plant from my soil, my potassium use will skyrocket. Soil erosion will also be bad as there would be no stubble and mulch left behind to protect the land.

The 90% plus figure is also wrong. It is not 90% of the plant that is currently unused. More like less than 50%. It would be 90% of volume, but the stubble and leaf is very light. All the weight is in the grain.


Grain prices have had a rocket under then this week. Weather concerns, too much rain in some places, and drought in others are cutting wheat production.

See ya's.