Amid the much-anticipated release of the hot new iPhone and the intensifying presidential election, who would have thought that Corn Flakes would become one of the top stories of 2008? Record commodity prices and fears of food shortages have shoved technology and politics aside, driving food to the front page of newspapers including The Wall Street Journal and The New York Times.
The United Nations highlighted these issues in last week's Food and Agriculture Organization (FAO) emergency Food Summit. It's not surprising that everyone is interested in the outrageous jump in food prices; global interest was strong, with 25% of the summit's attendees being journalists. The outcome of the meeting, however, revealed that global food supply might not be as bad as you think.
Just the facts, Jack
The FAO's global Food Price Index, consisting of cereal (grain), dairy, meat, oil, fat, and sugar prices, jumped by 54% in the past 12 months. During this time, grain prices have increased by 92%, while dairy prices have almost doubled in the past two years. Interestingly enough, grain production is expected to increase by 3.8% this year, while overall global usage is projected to rise by only 2.3%. Yes, we may actually have an increase in grain inventory, despite food shortage fears.
Dairy is experiencing a similar situation, in which prices are skyrocketing but supply is still outpacing demand. Global dairy prices have dropped from a November index of 302 (versus a 138 index value in 2006), but costs remain high, because of increased grain feed costs.
Of course, the jump in ethanol production makes up part of global usage increases. The FAO estimates that corn-based ethanol production will increase by 20 million tons this year. To put things in perspective, this increase accounts for less than 1% of global grain usage. Humans are eating 1.5% more grain, and livestock are consuming 0.5% more grain annually. But high grain prices are actually stimulating the production of more wheat, not corn, with an expected gain of 8.7% in wheat production this year.
Can't we all just learn to share?
The real global story here is that we're just not sharing with each other right now. Although production levels are increasing, exports are declining. International trade is expected to fall 4% between 2008 and 2009. The supply is there: Overall grain inventory is at a level of about 20% of annual consumption. But export restrictions are just one of the many things keeping food from getting to the folks who need it.
So what does this mean for your portfolio?
Agricultural leaders Monsanto
While all of this indicates there is enough food to go around, food prices will likely sting your pocketbook for some time. However, there are some great investments out there to capitalize on consumers' hefty grocery tabs.
Sink your teeth into further Foolishness: