AGRICULTURAL COMMODITIES, A BROCCOLI BULL
by David Urban
June 12, 2007

For months now, the markets have touted the virtues of ethanol as an alternative fuel but there is a dark side to the product outside of its inefficiencies. Removing a dietary staple from the food chain has its consequences. Corn is a staple of the diet in Mexico and tortilla prices have more than doubled over the past year causing protests in the streets. In addition, corn is a basic feed item for meat producers and has sent the cost of meat production higher as well.

Even in the produce aisle of the local supermarket, corn and other produce prices have been rising. In the winter, a severe freeze in Florida caused enough damage to the orange crop where additional oranges had to be imported and the price of oranges and orange juice shot up.

In the United States food prices are showing the largest increase since 1980 with the UK seeing comparable increases. In Dubai, rice and other food products are being capped. In Saudi Arabia, the price of fresh vegetables has risen by 21%. Food prices, which account for more than 30% of Chinese CPI, grew by 8.3% in the most recent period. Globally, food prices are showing a 15% year over year increase for April and May of 2007.

Chinese agricultural demand has grown more than anticipated, with imports rising to $33 billion dollars in the three year period from 2001 to 2004. At the last ASEAN conference, China signed an agreement with the Philippines to develop an area of land almost the size of Rhode Island with high yielding crops for eventual import into China to satisfy rising demand.

A combination of higher demand, drought, and farmers switching from other fruits and vegetables to growing corn and sugar is creating a perfect storm for agricultural commodity prices.

Fruit and vegetable prices are moving higher for other reasons as well. As companies like Whole Foods have shown, consumers are willing to pay higher prices for organic and locally grown products. Organic and locally owned foods have begun to make inroads into people's diets as they move away from eating unhealthy foods to eating organic.

In the rapidly developing areas of the world, like China, India, and the Middle East, rapidly growing disposable incomes allow people to afford better diets. Those diets are consisting more and more of organically grown agricultural products along with meat products which require agricultural products for feed.

Unfortunately, there are very few plays on organically grown agricultural products. Most agricultural products come from small family owned farms and are privately owned. But easy plays are in corn but there are a few plays in what may be the new and largely unknown commodities such as broccoli, radishes, onions, and tomatoes.

Sources:
A commodities boom makes itself felt in the supermarket
by Jenny Wiggins, Financial Times, Gulfnews.com, Bloomberg.com

© 2007 David Urban
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David Urban
Kingston, PA USA
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