Global Grain Stocks At 30 Year Highs Mean Food Deflation Is Next

Everywhere you look there’s still more evidence that the world economy is grappling with a  global deflationary supply glut.

To be sure, this wasn’t supposed to happen. 

Trillions in central bank cash and seven years of ZIRP across DMs was supposed to give a defibrillator shock to global demand and trade. Instead, the wealth effect never trickled down (surprise!) and wide open capital markets only served to keep insolvent producers in business, contributing to still more supply as everyone hangs on until the bitter end. As China’s slowdown continues unabated, the commodity hoarding becomes more evident and indeed on Thursday, The International Grains Council reported that global grain stocks are forecast to hit 447 million metric tons, the highest level in 29 years. 

From the report:

End-season grain stocks in 2015/16 (aggregate of respective local marketing years) are now placed at 447m t, up fractionally y/y. While carryovers of wheat, barley, sorghum and oats are expected to increase, maize inventories are seen retreating slightly from last year’s levels. Trade in the year ending June 2016 is forecast to be down by 2% y/y. As China has recently been a heavy importer of feedstuffs, including sorghum, barley and DDG, traders are wary of potential changes to state support mechanisms, which could alter buying patterns. 

And more from Bloomberg:

Wheat and corn futures in Chicago are heading for a third year of losses after back-to-back bumper global harvests and world wheat production this year will match last season’s record 720 million tons, the IGC said. European wheat crops escaped damage from heat this summer, and prospects for the U.S. corn harvest have improved, said Amy Reynolds, a senior economist at the council.

Corn futures declined 6.2 percent this year on the Chicago Board of Trade and wheat slipped 17 percent. The commodity is trading about 6 percent above a five-year low set in May.

France, the European Union’s largest wheat grower, will harvest 41 million tons of the grain, the IGC said. That’s higher than FranceAgriMer’s outlook earlier this month for a record 40.4 million tons. Surging supplies of grain have filled up silos in Rouen and Dunkirk and sent futures in Paris to a nine-month low.

So in the end, it's simply more oversupply in the face of still depressed demand with no hope of a turnaround on the horizon as China lands hard and consumers are constrained by lackluster wage growth and subpar DM economic "recoveries." 

We'll close with what we said on Sunday in "Global Trade In Freefall: Container Freight Rates From Asia To Europe Crash 60% In Three Weeks":

For now, however, printing money no longer equates to boosting global trade. In fact, easy monetary policy now appears to be backfiring, as even the "market" has figured out.

So, sarcasm aside, what really happens next, to both shipping, trade, the global economy and markets? Sadly, unless central planning finally works after 7 years of failing ever upward... this.

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Full IGC report:

gmrsumme

Comments

[goldhedge]

Better Feast Before The Famine.

[junction]

Just what we need in the USA, a record harvest of glyphosate corn that we can't export.  With the silos already full of the contaminated corn, farmers will end up burying the remaining unsold corn in big trenches.

[TeamDepends]

Let's put our thinking caps on. (light bulb) That's it! We turn it into Progressive Chow. When this thing goes tits up in a few weeks, progressives and FSA cadets will have zero food stored up. It's a win-win.

[NikoBellick]

Please don't feed the animals!

[db51]

Don't believe the Global Grain Glut Storyline.     The stocks number for all grains is manipulated by USDA.....This monster crop they are predicting this year ain't happening.....trust me on this one.

[MD]

Wait, what?  Grain prices are coming down???  It was only yesterday that Gail Twerpburg was predicting the collapse of society as we know it.  But alas, we have an abundance of food, it seems.

[New_Meat]

u caught this too!  Good on ya!

- Ned

[Stormtrooper]

Gail was talking about the value of labor. Until you will work for 10 cents/hour in a deflationary world, the cost to produce those grains will be un-economic and they will no longer be produced.

[BeanusCountus]

Love it. But I can assure you there will never be a permanent over abundance of food. Only periodic shortages of the number of people that can afford it.

[PoasterToaster]

There already is, and has been for a very long time.  There has been no reason for anyone on Earth to go hungry for over a century.  It is arguable that there has been a "surplus" since the dawn of civilization, and famine was never necessary absent natural disaster.

The only reason that we have any shortages at all is because of the artificial scarcity imposed on us slaves.  Our slavemasters want us to believe that there is not enough food and shelter to go around, so they can continue their vile game of domination and theft.

That's why deflation and inflation have been redefined into obscurity by the slavemaster apologists known as Neo Keynsians.  They are terrified their silly equations won't balance and the lie that backs their precious "system" will be exposed.

Remember this is a story about mountains of food, which is being spun as a bad thing here in comments for some reason.

[MD]

I'd believe you if you had an ounce of evidence to support your claims.

[PoasterToaster]

Has the supply of currency decreased?  How could there be deflation when the Fed is still creating currency hand over fist?

Price changes are not deflation, or inflation for that matter.

[New_Meat]

"How could there be deflation when the Fed is still creating currency hand over fist?"

... er ... I'd say to stick your head into a toaster until u kin figger this out.

But as an exercise for the newbie, (u gotta remember Friedman, but not for this exercise) what would make prices go down?

Hint: U.S. Railroads post the war of Northern Aggression for a start.

In the old days we had simple captcha's to figger out whether anyone was "smart" enuf to post here. 

Above b my captcha' 4 u ;-)

Not that hard

- Ned

[Amish Hacker]

Unless it's the price of your currency that's changing.

Richard Russell, among others, pointed out several years ago that most of the world's debt is denominated in dollars, creating an "artificial short" in the dollar. Dollars must be bought in order to close positions, and so the dollar rises against other currencies.

Today's deflation is due to malinvestment, overcapacity and collapsing demand. Hard to believe there's deflation when tuition, rents, etc. are soaring, but it's on like Donkey Kong: the dollars that must be paid back will be more valuable (and harder to get) than the dollars that were borrowed. Given today's debt levels, that's going to be a problem. 

[PoasterToaster]

The "price" of something that is used to denominate price itself.  This is just an obfuscation, devoid of any real meaning.  Which is why it is the most popular sort of thing you will hear from Statist economists these days.

Finance is not economics.  Finance is a tool of theft.

[Tsar Pointless]

So...lower whiskey prices?

[Ralph Spoilsport]

What about lower bread prices? 

[TuPhat]

It will be just like lower oil prices that didn't show up at the pump.  Manufacturers will pay less and I will still pay more for anything I want to eat.

[bullybear]

Exactly. Because the US is rife with Oligarchys who through cheap money have been able to consolidate every damn important industry this country has. There is no "free market" and thus, no real competition to keep these scams in check.

[Mentaliusanything]

Lower input cost = Profit

They want less for you and more for them while all the time keeping you in fear of job loss or terrorists or bargaining power. It is indentured slavery. Withdraw your labor/ support without fear and the power they think they possess disappears

The only mistake they have made is the sword cuts both ways and we outnumber them 1000:1

[azusgm]

Curious. Are you in California? The price of a gallon of regular is $2.19 locally.

[Squid Viscous]

just what we need cheaper wonder bread, and more fat fucks scootering around the Walmart

[Barnaby]

Let's make it into automotive fuel!

~ every car executive in the world

[Chuck Knoblauch]

We get the GMO the sane world rejects.

Yum!

More work for Oncologists.

[Omen IV]

why not just produce ...Lies -- and keep the game rolling indefintely - they are cheap to manufacture and Hillary and Jeb will make major contributions

[cowdiddly]

Im so pleased to be informed of this I think ill start looking for me a fat azzed Mexican woman now since so many are going to be allowed to come in. I can see it now, Mamacita in the kitchen patting up dem handmade flour tortillas by the dozen for pennies. And then she will stick a corn husk and corn meal in the giant wattles on the back of her arm while moving them down and out will squirt the perfect tamales out from under her armpits just like a cake decorating nozzle. Man Ill have it made. Ill be the envy of all my friends.

[serotonindumptruck]

YUMMY!

[CHC]

Grains lower...hops lower...cheaper beer!! 

[New_Meat]

now that is serious third order thinking!

[q99x2]

Good because I'm hungry. Bought tortillas tonight.

[khnum]

it will be converted to biofuel or rot in a warehouse one things for sure the poor aint getting it

[Uber Vandal]

It does appear that history is rhyming more and more.

From the source:

Only Yesterday by F. L. Allen

http://xroads.virginia.edu/~HYPER/ALLEN/ch14.html

What were the economic diseases from which business was suffering? A few of them may be listed categorically.

1. Overproduction of capital and goods. During the nineteen-twenties, industry had become more mechanized, and thus more capable of producing on a huge scale than ever before. In the bullish days of 1928 and 1929, when installment buying and stock profits were temporarily increasing the buying power of the American people, innumerable concerns had cheerfully overexpanded; the capitalization of the nation's industry had become inflated, along with bank credit. When stock profits vanished and new installment buyers became harder to find and men and women were wondering how they could meet the next payment on the car or the radio or the furniture, manufacturers were forced to operate their enlarged and all- too-productive factories on a reduced and unprofitable basis as they waited for buying power to recover.

2. Artificial commodity prices. During 1929, as David Friday has pointed out, the prices of many products had been stabilized at high levels by pools. There were pools, for example, in copper and cotton; there was a wheat pool in Canada, a coffee pool in Brazil, a sugar pool in Cuba, a wool pool in Australia. The prices artificially maintained by these pools had led to overproduction, which became the more dangerous the longer it remained concealed. Stocks of these commodities accumulated at a rate out of all proportion to consumption; eventually the pools could no longer support the markets, and when the inevitable day of reckoning came, prices fell disastrously.

Commodity prices plunged to shocking depths. Wheat, for instance: during the last few days of 1929, December wheat had brought $1.35 at Chicago; a year later it brought only 76 cents. July wheat fell during the same interval from $1.37 to 61 cents. Mr. Legge's Federal Farm Board was not unmindful of the distress throughout the wheat belt caused by this frightful decline; having been empowered by law to undertake the task of "preventing and controlling surpluses in any agricultural commodity," it tried to stabilize prices by buying wheat during the most discouraging stages of the collapse. But it succeeded chiefly in accumulating surpluses; for it came into conflict with a law older than the Agricultural Marketing Act-the law of supply and demand. When the dust cleared away the Farm Board had upward of two hundred million bushels of wheat on its hands, yet prices had nevertheless fallen all the way to the cellar; and although Mr. Legge's successor claimed that the Board's purchases had saved from failure hundreds of banks which had loaned money on the wheat crop, that was scant comfort to the agonized farmers.

[New_Meat]

poaster toaster ought to pay attention here, don't cha know!

[PoasterToaster]

is the problem really too much stuff, or is it bankster manipulation?

[azusgm]

All this while there were hungry people in the cities.

[Chuck Knoblauch]

China and Russia have rejected GMO corn and grain.

Because it kills you.

[Teh Finn]

Sounds super sciency.

[commishbob]

Look for Rods of God to hit silos any week now...

[ghostzapper]

How's ole Rogers doing with his uber long commods posture?

[reload]

About as well as his long china Stocks play, which he has added to this week - source:as stated on BBC interview.

[PoasterToaster]

Inflation is only an increase in the supply of "money".  And nothing else.  Deflation would be a decrease in the supply of money, which has never happened since the US Oligarchy seized the monopoly on the creation of currency in 1913 when they created the Federal Reserve for themselves.  Everything else is a lie foisted onto people to excuse theft.

Changes in price are not inflation or deflation.  Enough of the Post Neo Keynsian moonbat cult definitions.

[Consuelo]

If only...

People would use (3) small words in front of 'deflation' or 'inflation', this would be so much easier... I think it's more a matter of being married to an argument, rather that simply observing the obvious...

'The effects of'... Inflation.  Increase in prices for necessities (typically).

'The effects of'... Deflation.  Decrease in asset prices for non-necessities (typically).

[Duc888]

US grain supply at an all time low.

hmmmmmmm.

[bullybear]

AS IF lower commodity prices mean lower prices to the consumer. See: oil/gas, gold, silver, copper, food, etc ad nauseum. There is no real free market left. Just the Oligarchy.

[adr]

It just shows how everything has become so overvalued over the last 15 years.

Hmmm, what happened 15 years ago. Something called the Commodity Futures Modernization Act.

I wonder if that had anything to do with commodities going haywire and rocketing to the stratosphere based on nothing but supposed future demand that never materialised.

But governments and corporations based their operations and future payouts on the windfalls coming from an obvious overvaluation.

We need a reset to the depths of 2000 and reinstate all the regulations that were repealed. That start might get us rolling down the right path. Of course that means undoing 15 years of "wealth" generation for the 1%. They aren't going to let go of it easily or willingly. They'd rather destroy the world than part with a cent.

[CosmicDebris]

Let them eat cake!

[Spiritof42]

I was wondering when food prices would collapse. NOTHING is going to escape this deflationary collapse. There is no bottom in sight.

[22winmag]

Okay fine... maybe I was a bit premature buying up bricks of vacuum packed grains and 100 can cases of sardines. In any event, I can still eat the shit and it's not like I'm losing millions of dollars.

[buffed]

It's due to the growing popularity of the Paleo diet.

[paddy0761]

I think you maybe right. Cattle prices have been on a tear.

http://www.agweb.com/assets/1/6/MainFCKEditorDimension/1_-_Cattle_prices...

[Raoul_Luke]

This can't be a good sign:

http://www.wsj.com/articles/u-s-farm-income-to-fall-to-lowest-level-in-n...