Friday, April 25, 2008

Jumped the Shark

OK, this is the last food post. I swear.

This thing has totally jumped the shark. From a column in the Wall Street Journal:

Load Up the Pantry
April 21, 2008 6:47 p.m.

I don't want to alarm anybody, but maybe it's time for Americans to start stockpiling food.

No, this is not a drill.

You've seen the TV footage of food riots in parts of the developing world. Yes, they're a long way away from the U.S. But most foodstuffs operate in a global market. When the cost of wheat soars in Asia, it will do the same here.

Reality: Food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund. And there are very good reasons to believe prices on the shelves are about to start rising a lot faster.

"Load up the pantry," says Manu Daftary, one of Wall Street's top investors and the manager of the Quaker Strategic Growth mutual fund. "I think prices are going higher. People are too complacent. They think it isn't going to happen here. But I don't know how the food companies can absorb higher costs."
Some points, tongue firmly in cheek:
  • Food is very cheap! Seriously, if your food budget is rising, maybe you should stop eating out all the time! (I'm looking at you, Elk Grove.)
  • Do you really "feel better" eating all that overpriced organic food? Honestly?!
  • Variety is the spice of life. If rice prices climb, try beans or bread.
  • Food is perishable. How much can you really "stock up" on before it starts to go bad?
  • America is fat. I bet if we doubled the price of food, we would save twice that amount in health care costs alone. Quit eating so much!

Here's some perspective, courtesy of the Daily Show:

8 comments :

Deflationary Jane said...

The irony of a rice shortage in an area where we still have lots of rice fields is not lost on me.

Mr. Jane is convinced that this started with restuarants using staples as hedge like airlines do with fuel. In either industry, prices go up enough, people just stop using them. That'll turn out well.

Max said...

Mr. Jane is convinced that this started with restuarants using staples as hedge like airlines do with fuel.

He's exactly right. Check out this quote from a Bloomberg article on the rice shortage:

The shortage is affecting Bay Area charitable organizations, who say the number of people seeking meals has increased just as supplies are tightening. The San Francisco Food Bank will distribute some rice from recently received truckloads it agreed to purchase last year, though the price volatility means future stocks could decrease.

Sounds like hedging to me. I just wrote to the head of the program asking why he doesn't sell his rice for a profit and buy bread or beans? The objective is to feed the hungry, not feed the hungry the food of their choice. :)

I don't object to hedging to stabilize costs and preserve market share in principle (eg airline fuel), but at some point you have to level the playing field so everybody doesn't go broke. Maybe you tax futures. Maybe you break up monopolies after the fact. Who knows?

Darth Toll said...

"Hedging" in this case exactly equals crack-up-boom mentality. What they are basically saying is they expect the price to continue to go up and therefore might as well stock up and hoard today because the price will be higher tomorrow. Makes perfect sense and is very logical.

This is a little different than classic hedging for price volatility which are almost like derivatives and you are simply trying to level-out your risk exposure in a volatile market.

This ISN'T volatility, this is a crack-up-boom where the confidence in money (mostly in Asia and the Middle East) is eroding as in a hyperinflation. Very tough to contain this mentality once Pandora's Box has been opened. As the Comedy Central piece pointed out this is mostly "over there" so most folks here don't seem to care and are making fun of the whole situation. Currently we are only seeing knock-on effects where food from Asia is being hoarded and thus our supply goes down. Pretty soon people in the US will care though. Look for massive meat shortages in the coming months as farmers have been culling herds early because they can't afford the feed. It takes quite a while to raise a cow big enough to eat.

I'm not convinced the USD will hyperinflate yet, but certainly the Asians and Arabs must now make a decision: Keep on with the endless printing and recycling operations to support the US and the crack-up-boom continues, or cut off the treasuries support and kill the CUB. Either way, bad stuff happens but the first method results in chaos, revolution, mass starvation, and GD2 whereas the second results in GD2.

Russ has some pretty good comments on this today:

http://wallstreetexaminer.com/blogs/winter/?p=1591

siflsockpuppet said...

I shopped at Winco last night. White rice was more expensive but Rice A Roni was about the same as before. There was plenty of food to buy at reasonable prices, especially if I choose sale items. Some things are up, I spend more on food, but it's not so high that I can't afford to eat. This is all much ado about nothing. EVERYBODY PANIC!

Darth Toll said...

siflsockpuppet, you are wrong this isn't much ado about nothing. Crack-up-booms are extremely dangerous. Spend some time reading up about the causes and outcomes of CUB's before making such a flippant remark. This is the beginning of something very significant and I'm glad Max is highlighting it. Hopefully people begin to understand the connection between our unwise and unstable monetary policies and the beginnings of a worldwide CUB meltdown.

But I could be wrong...maybe this is nothing.

smf said...

The whole world got caught up in speculatory fever.

And now we get to see the results.

Anonymous said...

Hey, with the real estate bubble bursting, where are we going to throw our money now? Rice of course!

siflsockpuppet said...

darth - my comment was observational, not flippant. As an average guy on the street, food availability is not a problem at this time. Should we worry about the future, even the near future? Sure. But we don't need doom and gloom predictions crammed down our throat by the media right now. A run on food staples will only cause prices to rise - simple supply and demand.

Am I concerned we might be entering the great depression II? Sure. But much like all those who think the rapture is surely coming in their lifetime because the world is so bad, I think many - yourself included - are over-reacting. Much ado about nothing? Maybe not. Much much ado about not much yet - definitely.