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Why Are Food Prices So High?

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Regardless of what we eat, we're actually eating oil.

 
Anyone who buys their own groceries (as opposed to having a full-time cook handle such mundane chores) knows that the cost of basic foods keeps rising, despite the official claims that inflation is essentially near-zero.
 
Common-sense causes include severe weather and droughts than reduce crop yields, rising demand from the increasingly wealthy global middle class and money printing, which devalues the purchasing power of income.
 
While these factors undoubtedly influence the cost of food, it turns out that food moves in virtual lockstep with the one master commodity in an industrialized global economy: oil. Courtesy of our friends at Market Daily Briefing, here is a chart of a basket of basic foodstuffs and Brent Crude Oil:
 
In other words, regardless of what we eat, we're actually eating oil. Not directly, of course, but indirectly, as the global production of tradable foods relies on mechanized farming, fertilizers derived from fossil fuel feedstocks, transport of the harvest to processing plants and from there, to final customers.
 
Even more indirectly, it took enormous quantities of fossil-fuel energy to construct the aircraft that fly delicacies halfway around the world, the ships that carry cacao beans and grain, the trucks that transport produce and the roads that enable fast, reliable delivery of perishables.
 
Though many observers see money-printing as the master narrative of the global economy, we don't see much correlation between the Fed's ballooning balance sheet and food/oil. If money-printing alone controlled oil (and thus food), prices of oil/food should have soared as the flood of QE3 (and other central bank orgies of credit-money creation) washed into the global economy from late 2012.
 
Instead, oil/food have traced out a wedge: prices have remained in a relatively narrow trading range during the orgy of money-printing.
 
While money creation is one influence on commodity prices, supply and demand matter, too; in that sense, money printing only matters if it pushes demand higher while constricting supply.
 
Other observers use gold as the "you can't print this" metric of price. In other words, rather than price grain in dollars, yuan, yen or euros, we calculate the cost of grain in ounces of gold.
 
The gold/food ratio is around the level it reached in 2009 after spiking in 2008.
 
This tells us food is cheap when priced in gold compared to 2002, but it's more expensive (priced in gold) than it was at gold's peak in 2012.
 

In effect, the influences of monetary inflation and supply/demand show up in food via the price of oil. Until we stop eating oil (10 calories of fossil fuels are consumed to put one calorie of food on the table), oil is the master commodity in the cost of food.

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Wed, 05/28/2014 - 12:56 | 4802303 LawsofPhysics
LawsofPhysics's picture

It's all about calories, period.

Wed, 05/28/2014 - 13:00 | 4802310 Magnix
Magnix's picture

Plant your garden, eat veggies, fruits, and beers. Then you're all good!

Wed, 05/28/2014 - 13:05 | 4802329 Der Wille Zur Macht
Der Wille Zur Macht's picture

I want a beer tree...

Wed, 05/28/2014 - 13:18 | 4802354 ZerOhead
ZerOhead's picture

One bushel of wheat weighs approximately 60 pounds.
One bushel of wheat yields approximately 42 pounds of white flour OR 60 pounds of whole-wheat flour.
A bushel of wheat yields 42 one-and-a-half pound commercial loaves of white bread OR about 90 one-pound loaves of whole wheat bread.

So if wheat stays under $9.00 a bushel then there is less than 10 to 20 cents of wheat in every loaf.

Who said there isn't any food inflation out there...

Wed, 05/28/2014 - 13:19 | 4802366 Badabing
Badabing's picture

So, if food follows oil, what does oil follow!

Dose he think we’re dicks?

Who pays you Charles Hugh-Smith?

Wed, 05/28/2014 - 13:23 | 4802391 economics9698
economics9698's picture

Ahhh Venezuela has the cheapest oil in the world and bread is $11 a loaf.

When it gets hot and the excess reserve are no longer safe collecting 0.1% interest the full effects of this printing will be felt.

 

The money is printed, sitting on Wall Street and the Fed.  It will not last forever.

Wed, 05/28/2014 - 13:35 | 4802434 Four chan
Four chan's picture

oil like every other real thing follows the devaluation of the thing its measured by. fiat

Wed, 05/28/2014 - 13:37 | 4802441 fonzannoon
fonzannoon's picture

Check out these foods if you want a good laugh.

http://www.amplifyingglass.com/products/

Wed, 05/28/2014 - 13:42 | 4802454 Hippocratic Oaf
Hippocratic Oaf's picture

How many times have I said this? There is NO inflation!!!

Package size on the other hand............

Wed, 05/28/2014 - 13:48 | 4802470 Dixie Rect
Dixie Rect's picture

I think it's called shrinkflation.

Wed, 05/28/2014 - 13:51 | 4802473 BobPaulson
BobPaulson's picture

Hedonics says filet mignon is hamburger helper which is Alpo. After that I guess you just eat shit.

Wed, 05/28/2014 - 15:03 | 4802691 DaveyJones
DaveyJones's picture

horse manure does feed the crops

Wed, 05/28/2014 - 14:48 | 4802636 centerline
centerline's picture

That was great! Thanks Fonz.

Wed, 05/28/2014 - 14:55 | 4802658 j0nx
j0nx's picture

Agreed, the author is a tard. I've been saying it for 2 years now: there is only ONE SINGLE REASON for the massive increase in fuel and therefor food prices. Dollar devaluation courtesy of USGOV. PERIOD. Anything else is a lie up to and including weather and disease.

Wed, 05/28/2014 - 15:07 | 4802707 DaveyJones
DaveyJones's picture

so are you saying sweet crude is just as plentiful and easy to get 100 years later, the same amount of people are using it...and the same amount of products and services are tied to and dependent upon it? 

Wed, 05/28/2014 - 15:28 | 4802771 greatbeard
greatbeard's picture

>> so are you saying

Not only that, but farm output is not affected by drought or disease.  If you don't agree you are a 'tard. 

Tue, 06/03/2014 - 18:04 | 4821367 Factotum
Factotum's picture

I understand not being able to understand numbers (See 2012 election)   But really.  Not being able to read a simple graph?  That requires a new level of stupid (refusal or inability to learn new stuff)  Starting in 2008 money volume started going up and has not quit.  But the price of oil droped sharply and is still below the high achieved in 2008.   Seriously J0nx.  Are you blind???

Wed, 05/28/2014 - 13:22 | 4802384 Cannon Fodder
Cannon Fodder's picture

"Do you have any of that beer with skittles in it? You know, SkittleBrau..." Homer Simpson...

Thu, 05/29/2014 - 02:10 | 4804566 Tijuana Donkey Show
Tijuana Donkey Show's picture

"Then give me some beer and a pack of skittles Apu" - Homer Simpson

Wed, 05/28/2014 - 13:11 | 4802340 CrashisOptimistic
CrashisOptimistic's picture

Yes, you're good for 100 calories of the 2200 you need per day.

Wed, 05/28/2014 - 13:11 | 4802341 CrashisOptimistic
CrashisOptimistic's picture

Assuming you get up and walk to the bathroom from your puter now and then.

Wed, 05/28/2014 - 13:16 | 4802356 BrosephStiglitz
BrosephStiglitz's picture

Right.  It takes several acres of land to support one human's caloric needs for a year.  If you utilize high-tech growing such as hydroponics, or aquaponics you can cut that down by a factor of 8.  That's still a pretty big footprint and it's bigger than most people's back gardens.

Wed, 05/28/2014 - 13:20 | 4802377 CrashisOptimistic
CrashisOptimistic's picture

It's not that bad, bro.

Potatoes or peanuts can fuel 2 people per acre -- sort of inverting that ratio, but you will need some other things than just potatoes or peaunts, nutrient wise.

Where it gets ugly is when you have 20 people and need several acres, which means horses or oxen, and that means you need some acres in hay to get the draft animals thru the winter.

There is NOTHING about the future that is bright.

Wed, 05/28/2014 - 13:23 | 4802390 samsara
samsara's picture

Peak Oil

"The Future's So Dark, You'll Think You're wearing Shades"

Wed, 05/28/2014 - 13:30 | 4802423 BrosephStiglitz
BrosephStiglitz's picture

Peak oil wouldn't have been a big deal if humanity had foresight.  Naturally they did everything they could to inhibit progress.  Now the future looks painful.

Wed, 05/28/2014 - 14:22 | 4802569 daveO
daveO's picture

I guess I'm the only one who remembers the oil industry consolidation of the late 90's, when gas was .87/gal. We were swimming in oil and every other jackass drove a Chevy Surburban. I warned everybody then that we were gonna get screwed by the oil co's. They would just stare, oblivious. At least the Surburbans are gone.    

Wed, 05/28/2014 - 16:04 | 4802877 earnyermoney
earnyermoney's picture

"At least the Surburbans are gone."  LOL. Not where I live. Every other vehicle in the school carpool lane is a massive SUV, pickup truck or minivan.

Wed, 05/28/2014 - 15:48 | 4802832 samsara
samsara's picture

"Peak oil wouldn't have been a big deal if humanity had foresight. "

Like not letting the population get to 7 billion you mean?

Wed, 05/28/2014 - 14:31 | 4802495 Bollixed
Bollixed's picture

I've seen farmers grow 40,000 pounds of potatos as well as 100,000 pounds of onions per acre. An acre can support around 250 pounds of beef. All under ideal conditions. That means tractors, machines, and fuel.

Wed, 05/28/2014 - 14:37 | 4802607 LawsofPhysics
LawsofPhysics's picture

"That means tractors, machines, and fuel." - Correct, try producing that without the tractors, machines, and fuel.  Not to mention all the added nutrients and pesticides...

Morons.

Wed, 05/28/2014 - 14:47 | 4802635 Bollixed
Bollixed's picture

You forgot sunlight and water. Not sure what the point of your post is or who these morons are. The farmers? The commenters here? The author of the article?

Wed, 05/28/2014 - 15:31 | 4802778 DaveyJones
DaveyJones's picture

one problem with the "acres/person" analysis is that ignores how nature works and how mankind has sought out food for most of their time on the planet. Permaculture principles with mostly perennial plants lets the world of plants and animals supply most of the energy, fertilization and pest control work. In a truly stacked system with vines, trees, nuts, berries, beans, etc it's really hard to place a ratio number. One probably necessary adjustment is less meat, well definitely not the way we produce it now and just like plants a much much wider variety of it. There's plenty of insects.      

Wed, 05/28/2014 - 23:05 | 4804208 msmith9962
msmith9962's picture

The permaculture folks claim you can feed 10/acre with no inputs once mature.

 

http://www.openpermaculture.com/

See Geoff Lawton, Paul Wheaton, Sepp Holzer and the book the one straw revolution.

Wed, 05/28/2014 - 13:43 | 4802459 Miffed Microbio...
Miffed Microbiologist's picture

Mr's grandparents lived very comfortably on a 10acre farm in Wa during the depression. They had a 50X50 garden and fruit trees, everything not consumed was canned. They produced massive amounts of food including 10 head of all grass fed cattle yearly. What they didn't personally need was bartered. I was amazed how well they lived as compared to the city dwellers even without regular jobs.

Our 20x20 garden produces far more vegetables then we can use. We feed a lot to our meat chicken and turkeys to offset the cost of raising them. No, we cannot raise them as cheaply as low cost supermarket brands but far less than organic. Plus we know our pasture raised birds are not diseased and raised in filth.

There is a hidden cost to our cheap food that people don't see. I see it every day at my job in the massive proliferation of resistant bacterial strains killing people. People need to connect the dots.

Miffed;-)

Wed, 05/28/2014 - 13:51 | 4802474 Citxmech
Citxmech's picture

While I appreciate the spirit of your post - if you can feed two people all year on a 20x20 garden, you aren't eating very many vegitables.  

Wed, 05/28/2014 - 14:02 | 4802510 Dagny Taggart
Dagny Taggart's picture

Um... if one is creative, they can do a lot with very small spaces... http://urbanhomestead.org/ 

http://www.amazon.com/Mini-Farming-Self-Sufficiency-Brett-Markham/dp/1602399840

Wed, 05/28/2014 - 14:07 | 4802528 Hippocratic Oaf
Hippocratic Oaf's picture

That's because he's eating vegetables.

Wed, 05/28/2014 - 13:51 | 4802475 CrashisOptimistic
CrashisOptimistic's picture

Nice job, Miffed.

If it's still in the family, keep your mouth shut.

When the time comes, you don't want people remembering you.

Wed, 05/28/2014 - 14:05 | 4802518 crunchyfrog
crunchyfrog's picture

Ten head of cattle on ten acres calls for some pretty perfect conditions.

Wed, 05/28/2014 - 15:28 | 4802772 Citxmech
Citxmech's picture

Yeah, you can do all kinds of amazing stuff if you're trucking in feed, water, and fertilizer and have a prime location.  Once you try to do it on a non-ideal site, without an off-farm income, or without reliance on importation of feed, water, and fertilizer and copius amounts of fossile fuel power, the program becomes much more challenging and requires much more space to function long-term.  

Wed, 05/28/2014 - 16:40 | 4802958 Miffed Microbio...
Miffed Microbiologist's picture

I must admit this was on prime farm land in Wenatchee on the Wenatchee river. They did irrigate. The soil was fabulous. Rich and loamy. Could not ask for better conditions even with the the harsh winter. They did raise hay to keep their breeding stock over the winter. Unfortunately this land had been sold but we still have the 100 acres in Spokane. This is not as nearly so productive though it is only dry land farmed. My mother in law still raises cattle but she has to supplement with hay and barley to finish and sell her 10 head a year. Yes, conditions certainly do matter.

Miffed;-)

Wed, 05/28/2014 - 13:09 | 4802314 ZerOhead
ZerOhead's picture

Calories and profits...

The farmer buys the land, plants and maintains the trees, pays the harvesters, etc. etc.

"U.S. apple growers received a record average price of $0.34 per pound in 2012 for fresh market apples compared to $0.30 per pound in 2011 (NASS 2013). In 2011, the value of apples for processing was $338 million, according to the USDA."

http://www.agmrc.org/commodities__products/fruits/apples/commodity-apple...

http://www.ams.usda.gov/AMSv1.0/ams.fetchTemplateData.do?template=Templa...

And then the real value is added to the product when you go to Walmart and pay just a little more than 34 cents a pound...

Wed, 05/28/2014 - 13:15 | 4802355 spastic_colon
spastic_colon's picture

do all these calculations include the fact that my $10 only buys 8oz when it used to buy 12?

Wed, 05/28/2014 - 13:24 | 4802389 ZerOhead
ZerOhead's picture

Quit whining...

.gov studies show that the 8 oz portion now tastes 50% better than the old 12 oz portion... therefore there is no change in price.

Wed, 05/28/2014 - 15:40 | 4802801 DaveyJones
DaveyJones's picture

Good point.

US wars now last 500% longer therefore less people have actually died

and more people like us.

Wed, 05/28/2014 - 13:27 | 4802412 Jumbotron
Jumbotron's picture

"It's all about calories, period."

 

Energy Returned On Energy Invested (E.R.O.E.I)  

 

This controls and determines everything.....from energy, to work, to eating, to relationships, to investing.....etc.

But PARTICULARLY when it comes to sustaining the Elite's Utopia and the false "American Dream" of the middle class

Wed, 05/28/2014 - 13:52 | 4802483 cougar_w
cougar_w's picture

CHS makes a lot of good points and I usually like his stuff, but I don't think anyone yet has drawn all the lines between all the dots, and yes exactly EROEI is killing us, and not even slowly.

Money is vanishing from the system, and The Fed and the other CB are printing money like crazy. But that money has no productive place to go -- because we are not producing anything -- so it sits unproductive in banks earning interest (also paid by the Fed). People say "when that $14T hits the streets, the hyperinflation will be epic" and if that $14T ever did yes it would be, but it's not going to ever because there simply is no hole it can be poked into. Some went into housing, but housing has imploded and that money simply evaporated or is about to. A small amount has gone into infrastructure but even with all the government crony capitalist waste they can shovel, it just evaporated anyway. Those are all short-term uses of cash, little blips in the big picture, still we cannot produce anything.

Unless they let lose the hounds of war -- and produce destruction -- they simply have no hole to poke money into. We can only shovel money into destruction! God what a world. Christ on a pencil.

Because we cannot produce an economy on debt we are caught in a vise and it's closing on us day by day. One jaw of the vise is called "peak debt" and the other is called "peak energy" and the jaws of the vise are being screwed shut on the global economy, the US consumer, and every kind of useless debt financing.

I just don't see anyway out of this. There is simply no mechanism, no switch to throw, no gear to turn. We've run out of the energy that drove us to this cliff, and now we're going over the edge. Our Titanic has hit the iceberg and its going down and its not going to take very long doing it. Imagine any kind of solution or hiding place you want to, I'm standing here and I can see this shit is not going to work out. None of this shit, ever, will work out for anyone I don't care who you are or how you've prepared. The numbers are not there, the resources are not there, the capital is not there. It is simply not going to work out.

I do not have a Plan B. I don't know what to do. I'm going over the same cliff as everyone else and I cannot stop it, and it doesn't help at all that I know exactly why we're going over -- we're just going over and that's all there is to it.

Wed, 05/28/2014 - 13:58 | 4802499 CrashisOptimistic
CrashisOptimistic's picture

Buy farmland in the best climate you can find.

If you're a global warming person, pick farmland in colder areas than best.  If you think the collapse of oil consumption will stop global warming, then be content with "the best climate you can find."

Marry local so you stop being "other".  Don't plan on your kids going to Harvard.  Harvard won't be there anymore.

Wed, 05/28/2014 - 14:19 | 4802545 cougar_w
cougar_w's picture

Those are all coping mechanisms. Yeah, we'll have to cope and them as don't will quickly blow themselves up in one fashion or another.

Of course a collapse in oil consumption won't stop global warming -- we've got 50 more years of warming in the pipeline at the current rates or greater even if we don't release another ounce of fossil carbon starting tomorrow, and then it will take 2,000 years for the carbon we've forced into the system to sequester itself again. That's not even my opinion, that's basic science. We're completely screwed over for the next 2,000 fucking years. It's only going to get worse before it gets any better and it won't get any better for 2,000 years.

Yeah go find yourself a nice fertile valley in British Columbia, Canada. Clear the land, build yourself a sod cabin, do it all just right. See how long that lasts when 200 million starving and angry people streaming out of S. America, Mexico and the Lower 48 urban cores have exactly the same idea. They'll take your land and roast you on a spit with the wood from your rocking chair, is what they'll do. Can you imagine what it's going to look like as the 7 billion people currently living most in the equatorial belt all try to cram themselves and their economic and agricultural patterns into the 10% of the Earth's surface inside the Arctic Circle in Russia and Canada? Jeezuz H. Christ! How is that shit supposed to work? Just tell me how that works I want to hear it. There is nothing up there, no roads no cities, no trains, no industry no fucking anything up there. And we're going to build all that -- how? When? Who's going to built it and what the fuck reason do they have to then share it with 7 billion insane and desperate people none of them speaking the same language?

This isn't even fiction. I write really bleak and desperate fiction punctuated with acts of brutal and tyrannical violence, and I can't even wrap my head around the shit coming our way. It's just completely off the god-damned map. Nothing in human history comes close, nothing at all, you can't think of even one thing on this scale of loss, betrayal and suffering that can hold a candle to this nightmare.

It's pain, and it's coming. My worry is that literally nobody gets out alive.

Wed, 05/28/2014 - 14:28 | 4802582 fonzannoon
fonzannoon's picture

"we" may be screwed for the next 2,000 years but I have about 30 good ones left and another 30 plus good ones god willing after that for the family I care about. The 1,900 years after that I am less concerned with. I just hope those 7 billion people don't scramble for a while. 

(not by junk btw)

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