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As The US Drought Spreads To India, Will The Black Swan Be Deep Fried
By now it should be more than clear that the entire hope-based, short-squeeze driven, algo-mediated rally is the result of the last traces of hope: with the US economy openly in free-fall mode, housing supported only by once again increasing shadow inventory (and even that myth is starting to falter following today's existing home sales update), corporate profits just barely holding in as a result of the last possible cuts into the bone via personnel terminations now that YoY revenue numbers have once again sloped lower and the corporate growth cycle has turned, there is little sustaining the market aside from the mysterious seller of endless vol, which could be well, anyone, and some quiet prayer that China may step in and once again, like back in 2009, be the marginal economic dynamo that restarts the global economy one more time. It would do that in the conventional way, of course: by easing as much as it possibly can. There is, however, one problem with this: food prices. As everyone knows the product the PBOC pays more attention to than anything else is food: pork, soy, corn, etc., and particularly food prices. Because if there is one thing that can cause social upheavals in the world's most populous country, it is a rerun of the spring of 2011 when as a result of global easing, we saw not only the Arab Spring, but violent flare ups throughout China. Which brings us to today's topic: black swans. Deep fried black swans.
As UBS explains the record drought that has gripped America may well have far-reaching implications beyond just the price of corn in the US. If, indeed, adverse US climatic conditions spread, and it appears they already have as "the monsoon season, which is critical for that country’s agricultural production, is 22% below normal conditions for the year" it means that Asian food prices will broadly be the next commodity sector to go sky high, and with that kill any hope of either an RRR cut, or an outright reduction in the PBOC's Interest Rate.
And with that the last leg behind the hope-rally will be gone, leaving only Simon Potter doing his magic until he finally sells enough VIX to bring it to single digits. And then what?
From UBS:
Asian food prices have generally trended down since late last year, but that could change. US agricultural prices are on course to increase a whopping 25%m/m in July due to a severe drought. That translates into about a 6%y/y gain. If US agricultural prices stop rising sequentially they should finish the year up 20%y/y. By itself that doesn’t justify panicking over Asian food inflation based on the traditional relationship with US agriculture (not yet anyway). Chart 1 shows the relationship is positive, but far from one-to-one. There have been times over the last decade when US agricultural prices and Asian food inflation have even decoupled. That could happen for example if weather conditions in Asia are favourable (particularly in India and China) or in other parts of the world that compensate for US agricultural output. However, our fear is that poor weather on one side of the world tends to be followed by poor conditions on the other side.
If you’ve been following Philip Wyatt’s work on India then you know that the monsoon season, which is critical for that country’s agricultural production, is 22% below normal conditions for the year. That’s not a catastrophe, but it’s also not helpful given what’s happening in the US. The good news is that Chinese weather conditions have remained favourable for agriculture so far and that’s a positive. So this is where we stand. Recent US agricultural price increases are a negative for Asian food inflation, but not necessarily disastrous as long as local agricultural production can be sustained and that in turn depends mainly on the weather – something nobody seems very good at predicting.
Then again, praying for rain is oddly more appropriate and realistic than hoping that the central bankers will ease more with the US stock market at its 2012 highs.
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This year has been pretty wet throuhout China and Russia. Russia has seen severe flooding in some places which might bring its own problems for their AG.
South India saw positive change w.r.t.normal monsoon rainfall this year, but North India did not. Rice should remain stable and wheat should become more expensive.
Indian Drought.
Brought to you by Raytheon, Honeywell, HAARP and JP Morgan Chase.
Sponsored by the President's Working Group.
Gotta keep that evil AU down ;o)
Rubbish! Planet Earth is undergoing tremendous energetic changes due to huge amounts of energy streaming into our solar system. ZeroHedge readers should be familiar with "plasma cosmology", "space weather", the "electric sun", and the general concept of Gaia. It is important to understand that the so called Powers That Pee, are a pathetic bunch of clueless losers. You give them way too much credit. Take control of you own destiny.
But, in general this is a bad article.
- How does a drought "spread" (sic) from the USA to India?
- India has stockpiles and other countires can step in, no?
- If you can clearly see the unfolding situation, then is it a "black swan"?
Black swan - This term has now lost all meaning on ZH, it's become a cliche.
Kyoto !!! Remember Mr. Bush, the POTUS
All of your rain are belong to us!
Canada's prarie belt is in drought conditions, too. I wonder if the U.S. Government is still paying farmers not to grow crops.
Time to go long commodities regardless of your view on inflation in general. Food prices are going up up up.
Of course ex food and oil, inflation will not move at all per the Fed.
Yes, that's the great thing about the economy today. No inflation at all, other than in the 2 things I have no choice but to consume (food and energy). But I guess that's why they don't include those items in CPI - don't want to skew the index by introducing reality.
Inflation in what you need. Deflation in what you want (but can no longer afford without credit).
Food, energy, clothes etc going up in price. Widescreen TVs, computers and other doodads going down in price.
Housing (something you need) is going down if you are buying and up if you are renting. Can't buy without credit, but you can rent.
Hey, if India has some gold to trade, I have some soybeans for them. Awesome!!!
Paging Mr. Potter.....paging Mr. Potter....you're needed on isle one.
Magic beans, no doubt.
Did you say iStuff is a'goin down?
Yeehaaaaar!
I think China should sell some treasuries. Repatriate that money. Then hand it out like we do in the US. What harm could that do to anyone?
I was thinking that they might do exactly that, if things start getting tight for them.
They already have been and are already discussing another round of stimulus.
or just let the short maturities roll off without rolling over
I guess you guys can have some of our Belgian rain which hasn't stopped for weeks now.
Glad that I'm in italy right now :)
How 'bout some of them famous waffles?
But the good news is, no matter how bad things really are, we are only 3.02% off the S&P's high for the year!
Long ice-berg towing companies..
Rut-roh.
I really do believe that the majority of the "elites" (they really aren't; all they have are tons of imaginary zeros in their bank accounts) are really scared to shit if Romney get elected.
You think the populace dislike the President now? At least they give the guy the benefit of the doubt (which they shouldn't, but I digress).
If SHTF, espeically with gas/fool while Romney is in office, 99% of us won't listen to him. He'll be the biggest laughing stock of a stooge, ever. Even Bush has more clout than this clown.
Theres no chance of that, banksters have already decided who will 'win'. No way they'd ever leave their gravy train up the the whims of the peasants.
Question.
As a neutral outsider (British born 'n' bred)...
Are these FOOLS really the BEST you can do?
Really?
You're shittin' us, right?
And they say Yanks don't do ironic :O)
I know what you mean. You Brits got all the good ones like Tony Blair and Gordon Brown. And our Prince just wanted to be some silly symbol, unlike yours who wanted to be Carmilla's Tampon.
The Northeast US has to be close to drought-the grass and even the weeds are freaking brown.
...except for Joseph.
well, it surley the hell isn't that half-wit Joe Biden.
The sad reality of the human species today is this, the market values the price of food higher as demand is greater than supply.
Our currencies are for the most part fiat.
Those who have the post fiat coin gets to eat, other than the farmers who grow it.
Those who don't have the funny paper bills or in Canada's case, plastic bills which can melt away, are going to go without eating, unless they take it by force from thos who have, probably destroying the producer at the same time.
Is there a way around this? Sure.
But greed and Wall Street economics and paper fiat will have to go. A bit of compassion for our less well off brothers and sisters wouldn't hurt either.
how do you know the drought is not brought to you by HARRP?
If it is HARRP, who is in control-everyone is getting zapped?
There has to be a rationale too...like expropriating the kulaks or something.
Who is in control?
Why...the aborted rat-foetuses which refused to die...commonly known as The Honourable This 'n' that...
Hoodathortit?
perhaps there will be some good trading opportunities becouse of this drought. In wheat for instance.
BUY BUY BUY!! Whats that? Everyones buying? Then SELLLL!!! SELLLL!!!!
Buy Products! Sell Phones?
Or was that byproducts and cellphones?
Now I am confused. Better watch CNBC - that'll fix it :O)
Shorted cotton and that got me a new PC....price was at a 150 year high!
Shorting Corn...still thinking that one out.
The good thing though, is that crops have a short cycle - so even a couple of bad years is still worth the wait if the current price is high enough.
Don't forget the Koreas, they both are experiencing severe drought in certain agricultural areas. Large enough to cause concern.
Russia has had heat and drought but way out in Siberia where large forest fires burned recently.
It's odd here in the USA, where I live we got a record rainfall event just a few weeks ago, broke every record in the book! But now, after only two weeks of this heat, record heat, my lawn is dead as a doornail almost overnight. They are calling these things flash droughts, where the heat is so intense that it drys out everything in days, even if record rain fell on a few weeks back. Crazy stuff!
Its called Global Warming.... weather gets more extreme...deal with it...
Here is a statistical analysis that shows it
http://arxiv.org/abs/1204.1286
What was once 3 sigma i.e. 1 in 100 is now 1 in 10....
The globe has been warming continuously since the end of the last ice age, and will continue to do so until the beginning of the next one.
So, what was the driving mechanism for the Ice Age cycles?
Is it still dominant?
What is the measured rate of temperature change for those cycles?
What was the maximum C02 level over the past 400,000 years?
Where do we stand now on C02 levels?
How fast did C02 levels change over that period?
When you can correctly answer the above questions, we may pay more attention to what you type, not before....
Sorry Flak. your boi Albert up and "released the 2nd chakra" on the rug. The whole game is bust now, it was a nice try at a saving dive with the switch to "Climate Change", but really we already have that, sometimes as often as four times a year.
When the hungers come, it will be the last days of the hipster, save the whales and hug the trees crowds. They'll have to catch that last boat to Valinor, or be consumed. The world is fresh out of other peoples monies to waste on fantasies, utopian or otherwise.
I know better than to pose the same questions about basic climate science to you...
You are typical of posters here on any matters scientific, light on facts and long on meandering bullshit, bluster and ideology...
"What was the driving mechanism for the ice-age cycles?"
Betcha anything it wasn't humans.
The whole man-made climate change thing is just one more contrivance to get the little people to give up their cars (freedom), become more dependant on gov't (i.e., public transportation), and vacuum more $$ out of the pockets of the poor to middle class and send it to the rich via "green energy".
Did you just make my argument for me???
BTW, you should acquaint yourself with the argumentative fallacy Argumentum ad baculum and rephrase your rant....
Global warming?
That's sooooo 1970's, dude!
It's called El Nino / La Nina.
http://www.elnino.noaa.gov
http://www.cpc.ncep.noaa.gov/products/analysis_monitoring/lanina/enso_ev...
Oh, really.... Do you think that it is only the ENSO?
Could you explain why past ENSO episodes have not brought such extremes?
Could you also explain what the typical effect of a La Nina phase is on global temperatures?
Could you remind us of where the past 10 years have been on average with regard to the cycle?
Just wait until an intense El Nino hit, things are lining up for 2013 collision of sorts...
http://en.wikipedia.org/wiki/File:Enso-global-temp-anomalies.png
----
I'll give you a headstart, in a La Nina phase, the ocean "hides" a lot of heat in lower layers, in an El Nino, that heat is released....
And since you can find NOAA, you might like this
http://www.ncdc.noaa.gov/sotc/
I can tell you didn't read the report.
Too funny...
Check pg: 22 on and square with us your explanation that an El Nino or La Nina is behind this...
check out hugelkulture
http://www.richsoil.com/hugelkultur/
Not only do with have food inflation due to the insane, unworkable and utterly failed Fed policies but Mother Nature, who like Mr. Market, always wins, has decided to get all pissy with the planet and make herself known for a while. This is no doubt a one two punch that could knock us out for a while.
And I just do not understand anyone, any entity, any fund buying this market. A 5 year old could figure this out. Then again, we have Congress and the White House, so never mind.
Man, when she blows it will heard round the world.
the people buying this market know full well the end result. They will just get out before door slams shut, or so they hope
Man, when she blows it will heard round the world.
I gotta say, I've been reading this here for the past couple of years and it hasn't happened. Nor do I believe it will happen in my lifetime. This game can go on for a long, long time. China cuts, Europe cuts, bails out PIIGS endlessly, US has infinite QE, etc., etc.
So while the end game should be rather exciting, it's a long ways off. Until then, we'll keep up the charade and continue running the markets higher and higher, creating more and more bubbles. The bubbles come faster and fast now but I can't see how this won't continue for a long time.
What's the problem dahling?
No rice, corn or wheat? Eat Cake, my dear.
Or I-pads!
Or Bennie Bucks!
Be SURE that your garden / plantings have enough water by being SURE the property you buy has multiple water sources.
Sometimes I kinda feel sorry for the big AG guys that must rely on rain, then I remember the subsidies and Monsato and I think screw those guys.
"being SURE the property you buy has multiple water sources."
Like, buy in NOLA? Is that what yuur thunkin?
I have a spring that flows at 4 gallons per minute. I've set that up to run multiple things, but let's just stick to irrigation. It runs 4 sprinklers I have on portable stands that I can move around, effectively simulating rain around the clock if needed.
My neighbor has a similar set up, we have a pond that's on both sides of our property lines we could pump from if the springs both inexplicably failed.
There is a year round creek 100 yards away we could pump from on the South end of our properties, and if we put both of our gear together, there is a major river about 1/8th of a mile away that we could pump from
for those not fortunate to have a spring (lucky you), another option is rainwater harvesting (run it through a sand/gravel/compost filter to mature the water).
At the local grocery store it has recently become very common for people to have to use multiple forms of plastic to pay for all of their groceries. Usually a call to their bank on their cell phone also ensues. And this is for about a hundred bucks worth of food. People are getting tapped out, High food prices are going to be a disaster for a lot of folks.
Will the Fed unleash major printing program, QE3, just prior to a major supply-driven rise in food prices? If yes, Daddy Bernanke is insane, because Congress will audit all his files in 2013.
Congress is the biggest den of thieves and crooks ever assembled. They won't do shit. The Banksters own them.
"Even a five-year-old could understand this.... quick, someone send out for a five-year-old"....... Groucho Marx
Actually we have received rain & thunderstorms the last 3 days...grass was getting dry, but we received a much needed drenching in CT.
Haha, we got all your money AND all your rain now too. Suck on it bitches.
That's all our acid rain.
Before Jewish Bolsheviks came to Russia in 1917, Russia was a food producing place for the entire Europe.
After Jewish Bolsheviks came to power in Russia, Russia (by then it became the Soviet Union) went through an endless sequence of droughts, famine, and starvation. The Jewish Commissars Centrally Managed economy just did not work. People went hungry for the next 80 years.
Now, in America, we have Jewish-Banksters Centrally Managed economy. So, if some feeble-minded person thinks that Jewish-Banksters can do a better job managing an economy than Jewish Commissars have done before them then America is doomed!
PS
How will America feed 50-millions people of foodstamps assuming that food prices are about to go sky-high?
with 1 million lucky contestants drawn from the ranks of the 50 million.
Wendigo Meats, LLC. Purveyors of the Finest dried and salted Long Pork.
How? Easy, sharecropping. Fucking bring it, i'll even provide a tent for the bankster to sleep in at night.
I'll supply the bed of nails for him to lie on.
If by "tent" you mean "noose" and by "sleep" you mean "die" and by "at night" you mean "slowly," then I'm all for it.
Executions were a form of pulic entertainment right through to Victorian times. People brought the kids and packed a lunch. Vendors strolled through the crowd, like at a ballgame today. Last words were often amusing and executioners could keep the condemned alive a long time. A hanging could take all afternoon with proper precautions.
There were a few goyim helping them out - same with the Banking industry. There are lots of good Jews out there--but the bad ones are really screwing the planet
My previous message contained just hard facts and nothing else.
Apparently, two groups of people cannot handle the truth: pathologically lying Jews and regular idiots.
PS
Nikolay Nekrasov, the great a Russian poet, writer, critic and publisher, whose deeply compassionate poems about peasant Russia won him Fyodor Dostoyevsky's admiration and made him the hero of liberal and radical circles of Russian intelligentsia, wrote: “There is a God. This God is immensely powerful and merciless. The name of this God is hunger”
Just what a country of 1 billion impoverished people need. Shit happens by why does it need to happen all at once?
The Asian CPI curve looks like a lie (liebor lie).