Worldwide Shortages of Cereals



Sean Brodrick takes a closer look at the worldwide stockpiles of cereals. Mr. Brodrick examines supply and demand of wheat and corn and delves further into why the world is seeing shortages of these commodities.

Worldwide stockpiles of cereals (wheat, corn, etc.) are expected to fall to a 25-year-low of 405 million tonnes in 2008. That's down 21 million tonnes, or 5%, from their already reduced level in 2007.

Wheat recently soared to the highest price in 28 years. U.S. wheat stockpiles are at a 62-year low, even though farmers are planting from fence-to-fence. And with the U.S. dollar falling fast, foreign buyers are lining up to scoop up as much of the grain as they can carry away. Meanwhile rice is becoming increasingly scarce. World stores of rice have shrunk from 130 million tonnes in 2000 to the recent stockpile of 72 million tonnes, enough for only 17% of annual global demand, resulting in the price of rice rising 70% in the past year. And the price of corn is up over 70% in the past year and has more than doubled in the past two years as more corn is being used for ethanol.

It's apparent that the world could be one bad harvest away from a serious global food crisis.

- Egypt is having food riots. Food inflation is so bad in Egypt that people are rioting over sky-high prices. The government-owned Egyptian Gazette newspaper says that seven people have died since the beginning of the year in brawls in bread lines. The World Bank says 33 countries from Mexico to Yemen have already experienced unrest because of spiraling food costs, and 37 countries may face more social upheavals if food prices continue to rise.

- The Philippine government recently asked China to provide 200,000 metric tonnes of milling wheat, equivalent to about 10% of annual consumption. Beijing declined, leaving the Philippines scrambling to find more wheat.

- Cold weather is chilling the fields in the Midwest and rain is sending rivers near flood levels. Farmers who try to till or plant in soils that are too wet will risk compacting their crops and other problems that result in lower yields.

How did this happen Part of it is weather: too much rain in the U.S. in 2007, flooding in Indonesia and Bangladesh and drought in Canada and Australia curbed world stockpiles. As a result, the poorest countries may spend 56% more on grains this year than a year ago. Another component is the choice between food and fuel. Ethanol production is on course to account for some 30% of the U.S. corn crop by 2010. The International Monetary Fund estimates that corn ethanol production in the U.S. fueled at least half the rise in world corn demand in each of the past three years. As corn prices go up, animal feed goes up, and prices of other crops rise as farmers switch their fields over to government-supported corn.

Rising demand must also be taken into account. World Bank President Robert Zoellick recently told stated at a conference: "As the Indian commerce minister said to me, going from one meal a day to two meals a day for 300 million people increases demand a lot." And he's only talking about the poorest of the poor. There are 1.1 billion people in India, and they're all improving their diets and eating more Western foods. Meanwhile, 1.3 billion people in China are eating a lot better and eating a lot more meat; it takes 7 pounds of grain to make one pound of meat.

Political pressures are the final element: China isn't the only large, populous country that is curbing exports to ease prices and internal unrest at home.

"Vietnam, one of the world's three biggest rice exporters, will reduce shipments by a million tonnes in 2008 to 3.5 million tonnes to ensure supplies domestically and curb its highest inflation in more than a decade. The government also said it's considering a tax on rice exports. Kazakhstan just suspended its wheat exports to tame domestic inflation. Ukraine stopped wheat exports this month and reduced barley exports. Argentina has effectively pushed back the date that new shipments can leave the country. India has already put restrictions on its rice imports. And its wheat output may drop 1 million tonnes to 74.81 million tonnes in the March-April harvest because of a drop in acreage," Mr. Brodrick states.

To read this issue online, please visit:

http://www.moneyandmarkets.com/Issues.aspxProtect-your-Portfolio-from-the-Food-Crisis-1672

About SEAN BRODRICK & MONEY AND MARKETS     

Sean Brodrick joined Weiss Research in 2000 as an analyst, bringing more than 25 years experience as a journalist and financial analyst to the position. He is Weiss Research's small-caps specialist, especially in natural resources, and is the editor of the company's Red-Hot Canadian Small-Caps, as well as a regular contributor to its daily e-letter, Money and Markets.

Previously, Mr. Brodrick was the investment director of The Sovereign Society, the world's leading publisher of offshore asset protection strategies and global investment opportunities.

Recognized for his expertise on Canadian and Australian investment opportunities, Mr. Brodrick has been featured on many financial talk shows, including CNBC Squawk Box and Bloomberg Market Line. He is a weekly guest on Market Matters Radio, a contributing columnist to MarketWatch.com and a frequent commentator on one of Canada's premiere financial websites, HoweStreet.com. His report, "70 Days to Empty," has garnered acclaim for its analysis of the forces pushing America toward its next oil crisis and was described by

The Daily Reckoning as "the most important report you're likely to read this year," while his knowledge of uranium has helped investors earn solid gains on the commodity.

Mr. Brodrick holds a B.A. degree from the University of Maine.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.





Worldwide Shortages of Cereals