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Deja Food: Will Social Unrest Surge As Corn Prices Soar?

Submitted by Tyler Durden on 07/19/2012 17:51 -0400

With Corn hitting its highs again, we are reminded that global food production has been hitting constraints as rising populations and changing diets hit against flattening productivity, water and fertility constraints, and the likely early effects of climate change. As was described in the recent all-encompassing theory of global-collapse, there is general agreement that one of the contributing factors to the rolling revolutions beginning at the end of 2010 was increasing food prices eating into already strained incomes. It is unclear how much impact easing has had on food prices this time, weather has very much made its presence felt (as we noted here). From one omnipotent force (central bankers) to another (hand of god), the fear is that more broadly, food is likely to be a more persistent problem than oil supply. This is because we require almost continual replenishment of food to stay alive and avoid severe social and behavioral stress - food is the most inelastic part of consumption. This says nothing of the pernicious inflationary impact that will likely quell the kind of free-flowing printing so many hope to see from China et al.

The FAO food price index and outbreaks of social unrest. (Lagi et. al.)

Global food production has been hitting constraints as rising populations and changing diets hit against flattening productivity, water and fertility constraints, and the likely early effects of climate change.

One of the main effects of the Green Revolution of the 1950's, 60’s and 70's was to put food production onto a fossil fuel platform. Modern food production relies on pesticides, fertilisers, machinery, drying systems, long-haul transport, packaging, freezing and so on, all fossil fuel dependent. Modern seed varieties require more water, which requires more complex irrigation and aquifer pumping, again requiring more fossil fuel input, and putting more strain on already stressed water supplies. By various estimates, between six and ten fossil fuel calories are used to produce every calorie of food.

More directly, food is now being converted into fuel, adding further pressure to already strained supplies. Today, 40% of the US corn crop is used to produce biofuels, and globally, biofuels consume 6.5% of grains and 8% of vegetable oil production. The rise and fall in oil prices has been matched by food prices.

Food is the most inelastic part of consumption. Like oil, rising prices drive out other consumption, which can lead to job losses, unemployment, and defaults. The most developed countries spend about 10% of their disposable income on food, however in many parts of the world it is over 50%.

At this point it is illustrative to look at how the interactions between the financial, oil and food economies can have major unexpected repercussions. When major stresses are transmitted along complex and increasingly vulnerable inter-dependencies, there is a greater risk of system wide contagion and instability.

While food prices remained high, they received a further stimulus and increased volatility via massive quantitative easing in the US. The two rounds of QE were to support battered financial institutions. This injection helped drive a global commodity bubble, affecting an already stressed global food market. Pressure was displaced from the US onto the plates of citizens in the Middle-East and North Africa.

There is general agreement that one of the contributing factors to the rolling revolutions beginning at the end of 2010 was increasing food prices eating into already strained incomes. Food is, and always has been a mainstay of welfare and social peace. Figure:9 shows the recent correlation between the FAO index and outbreaks of political and social unrest.

One outcome was the revolution in Libya, a result of which was the loss of nearly two million barrels of high quality oil a day to the global economy. Thus oil prices remained high, averaging well over $100 even as fears for the global economy increased and growth in many major economies began to stall. From this perspective, QE temporally displaced risk to banks that returned as higher oil and food prices, via the real economy and a distant revolution.

More broadly, food is likely to be a more persistent problem than oil supply. Firstly, this is because we require almost continual replenishment of food to stay alive and avoid severe social and behavioral stress. Secondly, the loss of food in society had a far deeper impact than oil. Finally, the implications of evolving systemic risk means food production, access and affordability would be undermined.

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Thu, 07/19/2012 - 19:28 | 2634179 daveeemc2

Dairy/eggs/cheese - of them all, dairy is gonna go thru the roof. Dairy feed right now is over 400/ton on east coast, and rising by at least 20-30/ton/week.

I expect beef prices will fall short term, but next year is gonna be brutal for beef and dairy.

Corn is primary staple for ruminents (cows/dairy goats); i've been waiting for perfect storm of crop failure. Our little farm is gonna be sitting pretty next year =)

Good thing so many people on stampies - get ready for the rosters to increse exponentially with this latest trend.

Thu, 07/19/2012 - 19:51 | 2634270 q99x2

No one eats GMO and survives anyhow.

Thu, 07/19/2012 - 19:55 | 2634287 q99x2

On a side note: ZH has really been moving up the advertising ladder. Today I've received ads from Joe Arpaio and most importantly "Fitness Singles." Great improvement over the Soetoro and other prostitute ads I was getting.

Thu, 07/19/2012 - 20:31 | 2634376 Winston of Oceania

The ads you see are catered to your browsing history using algos much like the ones they ruined the "market" with. All I get now is superfocus ads...

Thu, 07/19/2012 - 20:04 | 2634315 devo

You lost me at "climate change"...

Thu, 07/19/2012 - 20:12 | 2634337 Ignorance is bliss

Don't worry you'll catch on at the check out counter.

Thu, 07/19/2012 - 20:35 | 2634384 JamesBond

the correlation is higher partialing broccoli out of the equation. just sayin'

Thu, 07/19/2012 - 20:52 | 2634427 Youri Carma

"Will Social Unrest Surge As Corn Prices Soar?" - Donnow but I do know gold will.

Turk – Summer Doldrums Over, Gold & Silver To Explode, July 16, 2012 http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/7/16_Turk_-_Summer_Doldrums_Over,_Gold_%26_Silver_To_Explode.html

There is a new factor at work that is about to light a fire under the precious metals that few people recognize – food inflation. It was one of the key drivers in the summer of 2010 which launched the huge rally that eventually took silver near $50 and gold to a new record over $1900. Food inflation was also a factor in the big run-up of the precious metals in 2007, and early 2008, when food riots broke out around the globe because of high prices.

The worsening drought in the midwest means that food inflation will again become one of the drivers sending gold, silver and the mining shares much higher from here. The summer doldrums are over. Gold and silver are ready to get exciting once again. We can expect a rally from here that will take our breath away.”

Fri, 07/20/2012 - 07:30 | 2635188 Escapeclaws

Food inflation: "We give you half as much for twice as much!" Hard to pass up a deal like that since 1/2 of 2 = 1.

Thu, 07/19/2012 - 21:03 | 2634459 chump666

*RTRS-Iraq closes main border crossing with Syria - mayor

Market is primed for a crash, equity last gasp in full effect. This market is looking really f*cking dangerous.

HFT fleecing.

Thu, 07/19/2012 - 21:48 | 2634567 americanspirit

There is a very large percentage of undigested protein in cattle, hog and chicken manure. You think Pink Slime was disgusting? Wait till the food industry starts slipping manure protein into the food chain. Won't happen? If you live in any big US city and drink a glass of water in a restaurant that water has passed through an average of 400 people before it touches your thirsty lips. Still think manure protein won't happen? Eat shit America. Happy meals for everybody!

Fri, 07/20/2012 - 03:54 | 2635039 Monedas