Friday, March 28, 2008

Agri Aggro: Rice and Pitchforks

Reports yesterday in The Economist and The Christian Science Monitor, and on the front page of The FT today on ongoing shortages and inflation in rice prices, echoing some of my earlier posts about agri-inflation.


FT: "While prices of wheat, corn and other agricultural commodities have surged since late 2006, the increase in rice prices only started in January."

This is just the sort of thing that worries me. With an increasing number of producing countries facing shortages and inflation at home, resulting from farmers' preferring to export at higher prices, more and more will choose to contain anger and dissatisfaction at home by limiting exports. Limiting exports of rice and other agricultural commodities, that is, but greatly increasing exports of man-on-the-street anger and dissatisfaction...
CSM : "Rice farmers here are staying awake in shifts at night to guard their fields from thieves. In Peru, shortages of wheat flour are prompting the military to make bread with potato flour, a native crop. In Egypt, Cameroon, and Burkina Faso food riots have broken out in the past week... Some countries like Vietnam, India, and Pakistan have banned grain exports. On Wednesday, Cambodia’s prime minister ordered a two-month ban on rice exports to neighboring Thailand and Vietnam 'to guarantee food security.' "
So what might be the next steps, broadly? Agri-exporting countries making such restrictions would see their current accounts and growth rates take a hit, possibly weakening their currencies and importing a bit of inflation... and making non-agri exports (if any) more competitive. Meanwhile, importers' domestic inflationary pressures will rise, driven by staples. To offset the possibility of (more) rioting, governments would probably prefer to spend more domestically, weakening fiscal balances and driving up growth, rates and their currencies... and weakening the competitiveness of its other exports. (Or is that projecting out too far?!)

(And let's leave the potential geopolitical/ military ramifications out of the equation for the time being... it's Friday, a wild first quarter is drawing to a close and it would just be far too gloomy to go into.)

I remain bullish on commodities (and canned food & shotguns) and so far, the pre-Easter break de-risking/deleveraging correction seems to be reversing itself mildly. On the other side of the First Quarter end, I expect the resumption of the commodity bull and USD bear to continue in full force.

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