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A Contrarian View From Peak Theories: Food Prices Set To Fall?

Tyler Durden's picture




 

Zero Hedge enjoys entertaining contrarian views, even to our own. The most notable recent one comes from Peak Theories which speculates that based on technical patterns, food prices are bound to fall. The one exception is rice, as we have speculated is long overdue for a major surge in price. Furthermore, as we will shortly show, speculative traders seem to agree with CFTC data indicating that net non-commercial specs continue to surge. As for dropping commodities, the ball we believe is in Bernanke's court - as last week's ICE margin hike in cotton demonstrated, exchanges' actions are now backfiring, and the only immediate price catalyst is broad market liquidity. Thus the question is whether Bernanke believes the Russell 2000 is at a high enough level that allows for a food price correction yet...

 

 

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Sun, 02/13/2011 - 14:46 | 957853 brodix
brodix's picture

Are we not in a bit of a Wil E. Coyote situation with the markets and they are not going to stabilize, but implode, if there wasn't a promise of eternal QE?

 Billions of brown people starving vs. markets largely owned by banks with negative real value being allowed to collapse..... Are you joking? What are they going to do?Get on ships and come over here and camp out in Central Park?

Sun, 02/13/2011 - 15:19 | 957912 snowball777
snowball777's picture

And if the starving comes to central park and millions of "white people" instead?

Sun, 02/13/2011 - 17:32 | 958166 Sudden Debt
Sudden Debt's picture

They can continue QE's but only if they would raise rates accordingly.

And that is not a option.

Second is massive austerity, but that's also not a real option.

 

Either way, we'll have to start biting the bullet sometime. The longuer it takes the worse it will get.

Sun, 02/13/2011 - 14:51 | 957865 tellsometruth
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I think we will see it supported through the summer till another similar September Surprise crunch,  with The coming March Bruhhaha with the comex setting the stage

Sun, 02/13/2011 - 15:05 | 957887 Oh regional Indian
Oh regional Indian's picture

The only way food prices will fall, except in some analytic paper, is when the demand plunges. Un-expectedly. I can see a few ways that the plans are in place to get the world rid of some useless-eaters.

In that scenario, who cares about prices anyways?

ORI

http://aadivaahan.wordpress.com/2010/06/14/know-thy-self/

 

Sun, 02/13/2011 - 15:11 | 957894 Turd Ferguson
Turd Ferguson's picture

Funny, I just wrote about this an hour ago. I completely disagree:

http://tfmetalsreport.blogspot.com/2011/02/preparing-accordingly-ii.html

All this nonsense TA can be thrown out the window. As long as QE continues, dollar-denominated assets will continue to rise in price. Period.

Sun, 02/13/2011 - 15:14 | 957900 99er
99er's picture

Sobering post; thanks.

Sun, 02/13/2011 - 15:50 | 957979 Zero Govt
Zero Govt's picture

Turd

As long as QE continues, dollar-denominated assets will continue to rise in price. Period.

You mean like they rose in 2008-09 ? .....they dropped through the floor post-2007 Credit Crunch I ...CCII is on its merry way, watch out below !!!

Sun, 02/13/2011 - 15:15 | 957902 dick cheneys ghost
dick cheneys ghost's picture

england to sell forests to cut the deficit. austerity is a bitch and is coming to america.

 

http://nakedempire.wordpress.com/

Sun, 02/13/2011 - 15:16 | 957908 gwar5
gwar5's picture

I think they're selling Sherwood Forest no less.

Steal from the rich and give to the poor? Er.... the reverse?

Sun, 02/13/2011 - 15:29 | 957926 patience...
patience...'s picture

We've been there already.

Remember King George had plans before.

http://www.commondreams.org/headlines06/0210-04.htm

Sun, 02/13/2011 - 15:15 | 957904 gwar5
gwar5's picture

There's always contrarian views. Contrarians are out numbered on this one by a wide margin.

Nobody thinks the dollar is coming back. The Fed doesn't even know what it's doing let alone possess a strategic plan for a return to solvency.

Food will continue to go higher until enough people starve to reduce demand -- that's the Bernankecide plan.

 

Sun, 02/13/2011 - 15:23 | 957916 Racer
Racer's picture

Interestingly enough I bought some bread flour yesterday, the price had risen in this particular supermarket chain from just over 50p to 126p within a few weeks a few months ago. The other supermarkets gradually increased the price and in one it was 126p yesterday (the slowest to rise the price). But the first one the price had plunged to 50p yesterday, so I bought a lot!

Sun, 02/13/2011 - 15:26 | 957918 Jasper M
Jasper M's picture

Yup. Retail chocolate prices crashing here – in Valentine's season!

Typer exposed "channel stuffing" in auto sector – this is "channel stuffing" in inflation. Doesn't matter how high suppliers bid up futures on the exchanges, if the consumer won't buy, it's not a valid metric.

Put anther way, compare to Reggie Middleton's criticism of Case-Schiller. While he does not dismiss the index altogether, he points out that it is not adjusted for changes in volume. If you raise prices, but don't sell the result, you have a problem, but Case-Schiller won't show that. And the recent froth in commodity exchanges (note their Not all going up together) tells us nothing about actual end demand.
Speculators loose all the time. They are not a great indicator of underlying trend.

Sun, 02/13/2011 - 15:50 | 957977 topcallingtroll
topcallingtroll's picture

My thesis exactly.  Most of this price rise except for foods (which don't matter in the usa cuz we don't spend much of our income on food) will collide with relatively low demand.  we probably have 500 years of clothing in the USA buried away in our closets and resale shops for example.  Not to mention everyone I know owns at least five hammers, six tape measures, and a hundred screwdrivers because it was just too cheap to buy an extra than to dig it out of the storage room.  The only thing that can go up in price indefinitely is new iphones with new bells and whistles.

Mon, 02/14/2011 - 03:25 | 959046 amusedobserver
amusedobserver's picture

Not to mention 20 cans of WD - 40...How many do you have?

Mon, 02/14/2011 - 11:12 | 959519 RexZeedog
RexZeedog's picture

4 cans - scattered around the house somewhere...

Sun, 02/13/2011 - 15:29 | 957925 The Rogue Trader
The Rogue Trader's picture

The problem with Peak's chart based analysis is the denominator of the grains' pricing which is the US Dollar...the article several times refers to the particular grains' lack of stability in pricing....I propose that the US Dollar is soon to not be that "stable" denominator by which to measure the true "price" or "value" of a grain.....couple that with hungry people who cannot afford food worldwide and all the old benchmarks become meaningless....paying up for food and supplying it to the people is fast becoming the only way for regimes to stay in power....food is now the currency of political staying power.....Tunisia? Egypt? Hello?

Sun, 02/13/2011 - 15:30 | 957928 snowball777
snowball777's picture

This TA bandini makes about as much sense as watching the Nielsen's for "The Biggest Loser" for a clue (up from 7M to almost 8M....correction imminent /sarc).

TD, when you 'entertain contrarian views', do you always pick fights with retarded midgets?

Sun, 02/13/2011 - 16:17 | 958012 Zero Govt
Zero Govt's picture

i like to pick fights with chubby bearded midgets because like all Govt Depts they don't know what the fuk they're doing... i also like contrarian views when their arguments have merit because that is how change happens, rather than the consensus of the herd

the inflation story is a very strong one, i can understand the basis, but 2007's Credit Crunch whacked property, the stock markets and all asset classes (Oil, Gold, wheat etc). It was 'deflation baby yeah' but nobody called it such because economists and wider society simply have their inflation blinkers on, for 25 years to be precise.

99.99% of us are all set for more inflation.... here comes change Ladies & Gentlemen, deflation it is

Sun, 02/13/2011 - 16:46 | 958077 SwingForce
SwingForce's picture

I agree with you, and take it further- If all the Non-Spec liquidity, pointed out by Tyler as being this catalyst, is removed, then yes you get CCII. But this time, you see the real definition of DEFLATION in action: Assets going Poof! Dollars burning. Last time, in CCI, The Fed came in and bought assets at face value, and made bondholders whole in Bear Stearns, AIG, and F&F. CCII will be different and will probably start with some bank or country defaulting on BONDS. There will be nothing this time to "reflate" because the assets will be gone, the smoke & mirrors trick will ignite in flames. Wouldn't it be ironic if there was a mad scramble for remaining USD's as people sold what crap they could and bought Tbills? It could happen, and people fly out of my butt.

Sun, 02/13/2011 - 17:03 | 958102 Zero Govt
Zero Govt's picture

agreed regards some big bank or country defaults but deflation is less about 'Big' anything, it is a social event. Namely the REAL economy of consumers (70% of GDP) and businessmen (small-medium enterprise is 90% of business activity) are in deflation mode.

So forget the Fed, the US Govt and Big Banks and their counterfeit money. They have fuk all to do with the real economy, they're just a Las Vegas casino of counterfeit money, a clown show that hangs off societies arses.  

When SME's and consumers say enough of this credit (debt) lifestyle, many have already, the credit card game is up. Everything in this house of cards contracts. Govt and Fed are trying to stimulate credit again but it's failed miserably. There's nothing the Govt or Fed can do. We've walked away from the table, we're not playing the credit-inflation game any longer. Deflation is the name of the game now, it's going to hurt but we don't want anymore debt, we're sick of the stuff

Sun, 02/13/2011 - 19:02 | 958304 BigJim
BigJim's picture

The part of the money supply generated by fractional-reserve lending has decreased, yes. This puts huge pressure on the banks.

The Fed uses QE to stop the banks imploding, but it can only do this by creating vast quantities of base money to replace the FRL money.

Unless the economy takes off - and I think you'll agree that isn't going to happen - the Fed will continue to pump more and more money into the banks, and the banks will attempt to make a profit on that money by buying stuff. The stuff they're buying isn't the stuff that is normally bought with FRL-created money (homes, boats, cars, etc) so we're not seeing inflationary pressure there - we're seeing it in everything else normally paid for with base money.

You might not be particularly troubled by food inflation, because the artificially high value of the USD (partly brought about by the rest of the world having to buy approx 2 TRILLION USD per annum to feed their oil habit) shields you from having to spend a large percentage of your income on it.

However, if - when - the USD loses value, your food bill will comprise a much, much higher proportion of your spending. You may not be so cheered by the collapsing price of yachts then.

Sun, 02/13/2011 - 15:31 | 957929 serotonindumptruck
serotonindumptruck's picture

Food prices are tied indirectly to the price of oil. If it becomes cost-prohibitive to mass produce or to ensure that the end product is delivered to the marketplace, due to the rising price of crude oil, then we will experience food shortages (empty store shelves), rationing, and perhaps severe food inflation.

The end result will be hunger and starvation for those who fail to adequately prepare.

Sun, 02/13/2011 - 16:51 | 958086 SwingForce
SwingForce's picture

Oil is also required for the plows, harvesters, and water pumps on the farm. 

Sun, 02/13/2011 - 15:33 | 957934 bugs_
bugs_'s picture

The keynesians WILL attempt to control food prices.  The true issue is not do food prices rise or fall, but is the food you wish to buy AVAILABLE.

Mon, 02/14/2011 - 19:09 | 961634 CPL
CPL's picture

Bingo.

Soviet era food mechanisms.  Strawberries in January for example.  Turnips, onions, carrots, squash and potatoes all year round because of the long shelf life and they don't have to be harvested during the fall.

Apples I suppose if they are irradiated properly.

Sun, 02/13/2011 - 15:36 | 957946 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

This is a thought experiment. I've been experimenting with this for a while.

Assume that a goal of QE2 is to force China, as well as other surplus exporters, off of their de facto pegs to the USD. The FED has the dual mandate of price stability and employment. Since deflation is the stated concern and of course balance sheet deleveraging is deflationary, we get QE.

The goal is to force China off of the peg in order to rebalance global trade away from the US as consumer of first and last resort, and China as production center of the world. US fiscal and current account deficits warrant a rebalancing. Actual unemployment rates of close to 20% in the US also warrant a reset of the offshoring system which has aided and abetted Transnational Corporations in maximizing profit while minimizing hiring within the US.

If China revalues the YUAN, it will 1) need to decrease emphasis on exports 2) rebalance demand internally most likely by reducing GDP growth rates 3) reduce over investment 4) increase Chinese imports.

The US needs to increase exports. China could be a large market.

As Turd's post on his blog shows in detail and as the ZH crowd should already understand, commodity pricing for food is going through the roof.

The Bernank says quite seriously that QE is not causing commodity price inflation. To be precise, it is speculators, some weather ills and stockpiling that is causing it. The FED is simply causing liquidity excess, the speculator's best friend. Asset prices rising are seen as a positive by the FED and taken causally, since POMO is the Primary Dealer's best friend and a lever to push assets out of bonds and cash into equities.

Now, China does not want to see it's UST holdings devalued. This is happening anyway. It certainly does not want to let the RMB float. This could cause margins at exporters to crash. There is still no viable substitute for exports to drive manic growth.

Turn the page to Egypt. A marvelous and fairly peaceful revolution. The ARMY is now caretaking the nation until a new government can be formed. End of a dictator, start of a new era, democracy! Even the Muslim Brotherhood is quiet.

Extremely neat and tidy. The ARMY however is for all practical intents and purposes a branch of the US ARMY. Perhaps it is a little too neat and tidy.

If I were sitting in a basement room in Langley, it would not seem too far fetched that a peaceful overthrow of what can be presented as a "corrupt" regime by the common people, all in the wake of stress brought on by food inflation, more or less guaranteed by the Egyptian Army, could send a very powerful message to the people in and around the PBoC. Chinese history is filled with thousands of years of peasant revolts revolving around famine and inflation. The longer China remains pegged to the USD, the longer food price inflation along with inflation across the board, will surge. Will administrative measures be sufficient to control commodity price inflation in China? Call me sceptical.

Tianamen square 2.0 may be around the corner, that would be the message.

 

Sun, 02/13/2011 - 17:00 | 958100 SwingForce
SwingForce's picture

That's a good side effect, but the first & foremost objective of The Fed is to pump as much money into The Banks as it possibly can. That is the ONLY objective. Once you see this, then failure to prosecute fraud, the phony irritation that the banks aren't lending or lowering interest rates to customers, all this becomes clear. The Fed doesn't care what China does, they care that we pay our old higher-rate mortgage, and our higher-rate credit cards, because that helps The Banks too. And bail out The Municipalities? Not on your life, they are not banks. Understand that The Fed is a private corporation owned by The Banks, so why do charity work for The Taxpayers? The Benbernanke has only 1 clear mandate, for as long as he's able to get away with it.

Sun, 02/13/2011 - 17:52 | 958191 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

And if the multinational corporations -- which are better described as transnational because they only reside in one place, the land of profit -- were just as bad, if not worse than the banks? Hallyburton, Koke, Apfel, GeeEm ... The banks are inflating away your savings via THE BANK. The corporations are moving your job overseas. Inflation with a job is a form of theft. Inflation without a job is slavitude. Is Congress going to put up tariffs against offshored jobs and labor arbitrage? In a word, nope. Are the Chinese going to shift capacity from exports by reigning in artificially low cost of capital generating absurdly high and unstable rates of fixed investement? In another word, nope. Or at least not in your lifetime. Unless they have to. If it were simply as easy as reigning in THE BANK, or targeting banksters, it would have been done. The tentacles run far deeper.

Sun, 02/13/2011 - 19:23 | 958337 SwingForce
SwingForce's picture

Precisely, and do the TransNationals pay ANY taxes to the UST? But their CEOs get appointed to Obama's IdioCommittees. Incredible, everybody and everything is blameless.

Except SunTrust who got $5 bill from TARP, still has it, hasn't helped me, sold my NINJA mortgage to FNMA while I was in foreclosure, and goes their merry way looking for more 3 year highs in the stock. How much can the wage-earning taxpayer take? Ben?

Sun, 02/13/2011 - 17:47 | 958185 Rick64
Rick64's picture

 It is imperative that the U.S. force China to float their currency. I think your right that the effects of QE is part of that plan.

Sun, 02/13/2011 - 15:39 | 957956 ThirdCoastSurfer
ThirdCoastSurfer's picture

Remember all the debate over the subsidies that the American (and all other?) Government pays corporate farms NOT TO PLANT or NOT TO PLANT A TYPE OF CROP (for various reasons including soil conservation)? This is (in part) where that plan pays dividends. Look for every possible nook and cranny to become farmland this spring.

At the same time, from the demand end, big changes result from small margin adjustments. There is no perfect example, but if 2 billion people  eat 1 less slice of bread a week in response to the dramatic increase in price the result is a dramatic reduction in price once the over-planting of the commodities that produce bread come to market because global demand does not rebound as quickly. 

Twice the price equals half the demand but when the price dips back to the previous level the demand remains static and is inelastic. 

Such a dramatically wet winter in the corn belt would seem to increase the possibility of a drought over the summer and only in hindsight does economics ever really make any sense. 

 

Sun, 02/13/2011 - 15:44 | 957964 topcallingtroll
topcallingtroll's picture

a strengthening dollar could be a catalyst.  Remember Ben Bernanke thinks this is a secular increase in demand along with some cyclical speculative excess, but he can't mention the latter for various reasons.  

I sure wish there was a way to calculate the net dollar short position the world is in right now, what with everyone piling into what is essentially a dollar carry trade (whether or not they do it with currencies, buy a year's supply of toilet paper, buy gold and silver, own real estate, or going long the stock market, etc.).

If you have any debt at all you are playing a version of the dollar carry trade with your assets.

Sun, 02/13/2011 - 15:57 | 957993 demsco
demsco's picture

charts are great with the exception they do not include supply, demand, weak or strong harvests and that important thing, weather. Corn supplies are at 15 year lows how is that being calculated in? I am sure his technical take is great but commodities are funny since they are real things that people need unlike stocks which renders technicals useless long-term. IMHO.

Sun, 02/13/2011 - 17:09 | 958115 Invisible Hand
Invisible Hand's picture

Exactly the point I was going to make.

Food prices are driven more by need and production than sentiment.

The population is still growing and we have hit a (hopefully) short-term air pocket in supply.

It is hard to know if the weather related crop failures in South America, Central America and Australia are one offs or trends.

The Medieval Warm Period about 1000-1300 in which food production (and population) soared in the Northern Hemisphere was followed by a cold period where famine was common.  This along with the Black Death resulted in a 25% or so population drop in Europe.

Based on solar patterns (green hype notwithstanding about CO2) we appear about to enter a cooling period.

We had better hope genetically engineered seeds can help produce enough food (if the idiots in charge will let us use them).  Also, we need to stop turning food into subsidized automobile fuel when we could do it cheaper with oil (if we would drill for it) or coal to liquid.

I don't know how much of a consolation it will be to the starving millions but all modern famines are man-made--usually evil governments (such as the Soviets starving 20+ million Kulaks in the 1920's or the average African government today).  However, the (possibly) coming Great Famine will be the Greenies and their Socialist Govt buddies fault--and won't they cry great big crocodile tears and swear that no one could have seen it coming.

 

Sun, 02/13/2011 - 21:29 | 958575 jdrose1985
jdrose1985's picture

Good comment.

Definite famine ahead. The dwellers of the world's sprawling slums: cheap crude derivatives like Nike basketball shoes and Sunday drives.

Sun, 02/13/2011 - 16:11 | 958000 Threeggg
Threeggg's picture

I think all the speculating on TA (which is drawn up and charted by the big boys = frontrunning) and such is really a diversion as to what the real focus should be.

The bankers and wall street need these massive price swings on "everything" so they can siphon money off the spread. The financial services "transaction velocity" is at a snails pace right now and cannot support everyone working in these sectors from fees. (like it use to)

I expect more mass layoffs in the financial services sectors through consolidation.

Sun, 02/13/2011 - 16:04 | 958004 Xibalba
Xibalba's picture

The Bernank will TRY to suppress prices, and will be successful in doing so for a short time.  I am expecting a similar disconnect to physical rather than spot.  i.e. the metals markets.  Spot price on foodstuffs will be lower than street prices.  Paper or Physical beetches?

Sun, 02/13/2011 - 16:20 | 958033 lunaticfringe
lunaticfringe's picture

Love the thread tangents- leaving the rails. You see I can live without a new pair of jeans but that fucking food thing is problematic. That oil and gas they use to ship that shit is problematic as well. My favorite kind of inflation is tax inflation. That shit is everywhere but I don't see government or Liesman reporting on that. Cost me twice as much this yr to register the same motorcycle I had last year. Sweet.

Sun, 02/13/2011 - 16:33 | 958057 Sutton
Sutton's picture

I like how he snuck in that 425 on the SP's 36 months from now.

Sun, 02/13/2011 - 18:19 | 958234 10kby2k
10kby2k's picture

it was scaled in thousands...you forgot the 3 zeros

Sun, 02/13/2011 - 17:19 | 958131 Lionhead
Lionhead's picture

Ms. Doolittle's analysis is some of the worst technical analysis I've ever seen. Her lack of knowledge regarding trends is very evident. Moreover, she lacks the insight of one of her peers, Louise Yamada.

She offers the reader nothing but her personal opinion of where markets are heading. Take it with a grain of salt. To cite but one example was her so called "diamond pattern" on gold. Not so.

Caveat Emptor

Sun, 02/13/2011 - 22:18 | 958663 UninterestedObserver
UninterestedObserver's picture

I see that Abigail is smoking the good stuff - good for her.

Sun, 02/13/2011 - 22:41 | 958695 fswalker
fswalker's picture

Its reports like this that add fuel to the fire against TA. An intellectually challenged 5-year old could come up with better analysis.

All this BS comes from the bottom feeding few who want to make a name for themselves or have a failing system and need a few extra bucks on the side. If you are into TA and have figured out a way to extract money from the markets on a regular basis, would you really post your commentary or simply lock yourself in a room for the next few years and make an absolute killing. Hmmmm...thats a tough one.

 

Mon, 02/14/2011 - 00:21 | 958839 dick cheneys ghost
dick cheneys ghost's picture

there is a global land grab going on. pressure on food prices is here to stay.

 

http://nakedempire.wordpress.com/

Mon, 02/14/2011 - 04:22 | 959098 chindit13
chindit13's picture

Here is how Geithner and Bernanke, during their Public Inquisition at some future date, might argue bailouts and QE are actually de-flationary:

---Bailouts went to the biggest banks and the favored corporates (GE, GM, etc.)

>>>The corporates celebrated their survival by building new plants in China and exporting even more US jobs, which decreased domestic US purchasing power...as a kicker, China stole, nine ways from Sunday, any proprietary technology GE, GM, etc. might have had, and the Chinese then produced the same products at much lower prices, which they then exported back to the US.

---QE dealt almost exclusively with the TBTF's

>>>And they did not lend, instead they just built up excess reserves at the Fed, save for what they tossed into commodity markets (to help the family farmer, of course).  Without getting that cash into the economy in the form of loans or higher wages, deflation of assets continued to play out, and consumers who couldn't get HE loans anymore could not pay top shelf prices for TV's and other gimcracks and geegaws (note:  APPL products were always immune from any known law of economics, physics, etc.)

>>>Less than TBTF banks were welcome to fail and have their assets auctioned off by the FDIC, which contributed to the rout in asset prices.  In addition, since small to medium sized banks were the traditional lenders to small business, as they died small businesses---who might actually have hired people---were shut off from the credit tap.  The more people out of work, the more every market became a buyer's market, keeping prices in check.

So Ben and Timmy really were trying to help the "little people", gawdblessim.  If making the banksta class obscenely rich was the price the country had to pay to keep inflation in check, so be it. They had to spend money in order to save money.

 

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