Barron's is Wrong Series Post 2: Increasing Consumption from Emerging Markets
My first post about how wrong Barron's commodities bubble article is focused on how the U.S. ethanol boondlggle is going to force the price of corn to continue to rise over the next year:
Today I am going to quickly talk about the increasing demand for food from emerging markets. The International Herald Tribune published an excellent article on this subject this morning:
Here are a few of the key points that illustrate why the demand / supply dynamics of rising grain prices are real, and not just some short-lived bubble caused by speculators:
- "Damaged by severe weather in producing countries and plundered by a boom in demand from fast-developing nations, global wheat stocks are at 30-year lows." (emphasis added)
- "World population is set to hit 9 billion by 2050, and most of the extra 2.5 billion people will live in the developing world. It is in these countries that the population is demanding dairy and meat, which require more land to produce."
- "In the next decade, the price of corn could rise 27 percent, oilseeds like soybeans by 23 percent and rice by 9 percent, according to tentative UN and OECD forecasts in February."
- "China's population is proportionately much larger than the countries that industrialized in earlier periods and is almost double that of the current G-7 nations combined"
- "The Chinese, whose rise began in earnest in 2001, ate just 20 kilograms, or 44 pounds, of meat per capita in 1985. They now eat 50 kilograms a year."
- "Each pound of beef takes about seven pounds of grain to produce, which means land that could be used to grow food for humans is being diverted to growing animal feed."
Sure the commodities markets have gotten a little frothy because regular investors like you and I now have the ability to come along for the ride, but to me it is unbelievably obvious that supply shortfalls, not rampant speculation, are driving up prices.