World Food Crisis?

Dear Reader,

This week while reading the Financial Times I discovered an article which at first may not seem as important as other financial and world news, but when read through and analyzed it becomes clear that this news could negatively affect all of us. The title of the article I found is "Corn prices surge to two-year high" and the article itself obviously talks about the rising price of corn over the past week and the effects this might have on the world economy. 

                             

http://uwstudentweb.uwyo.edu/L/LPETER11/corn2.jpg

First of all, it is very important to understand why this news is so important and what all the uses of corn are. One of the main uses of corn is in the food market where it is used in cereal, baby food, frozen foods, ketchup, margarine, mayonnaise, tacos/ tortillas, chewing gum, chocolate etc... but corn is also used to make bioproducts, corn-oil, ethanol, feed, sweeteners and starch. Its used to make batteries, insulation, paper manufacturing and even aspirin! Only on automobiles corn is used to make cylinder heads, spark plugs, synthetic rubber finishes and the tires. We are in contact with corn products all day everyday. Corn is the most important crop grown in the United States and one of the most important ones worldwide. 

The Financial Times article states that corn prices hit a two year high on Monday, jumping more than 8% "as traders scrambled to buy after the US Department of Agriculture warned last week of “dramatically” lower supplies because of bad weather". Corn prices have surged more than 15 per cent over the past two days. Normally the day limit for corn in Chicago is 30 cents but the barrier has been widened to 45 cents on Friday after corn prices rose drastically over the week. many analysts think that corn prices could go up to 6 dollars a bushel (each bushel of corn can produce up to 2.5 gallons of ethanol fuel), a level like this has only been seen during the peek of the 2007-08 food crisis which caused much trouble in the world. 

                                        

http://www.ft.com/cms/s/0/7ea9b2d0-d502-11df-ad3a-00144feabdc0.html?ftcamp=rss

One of the worst hit countries in the 2007-08 food crisis was Mexico where tortillas are extremely popular and (were) extremely cheap before 2007. The rise of the corn price obviously lead to an increase in the price of tortillas in some parts of mexico from $ 63 cents a kg to $ 1.36 - $ 1.81 dollars. With a minimum wage of $ 4.60 a day, many Mexican families were forced to either eat less tortillas (and be hungry) or switch to alternatives such as cheap noodles. This is just one of the many examples there are with the food crisis in 2007-08 along with increased prices of ethanol and meat.

Today the meat industry already warned of a "game changer" in prices and profitability due to the surprise contraction in the United States corn supply. Meat analysts forecast higher prices for beef, pork and poultry as producers pass on higher feeding cost, and shares of some of the world's largest meat producers fell sharply on Friday. Farm equipment such as tractors and fertilizers on the other hand soared  

Richard Feltes, analyst at brokers RJ O’Brien in Chicago, said: “Buy farm equipment stocks and sell food company stocks.”

http://www.washingtonpost.com/wp-dyn/content/article/2007/01/26/AR2007012601896_2.html

After reading this article I started thinking of how fragile the global food economy is and how one or two seasons of bad weather can cause such great damage to so many industries and to so many countries. Should we maybe start to think of more substitutes for corn since there aren't many around or should we be more cautious with how we use our resources? 

Have a good week,

The Financialista

Financial Times:
Mayer, Gregory (2010) "Corn prices surge to two-year high" Date Viewed: 11th October, 2010. Available online at:

http://www.ft.com/cms/s/0/7ea9b2d0-d502-11df-ad3a-00144feabdc0.html?ftcamp=rss

Corn Refiners Association:
Main Website (2010) Date Viewed: 11th October, 2010. Available online at:

http://www.corn.org/products.htm

The Washington Post:
The Washington Post (2007) Date Viewed: 11th October, 2010. Available online at:

http://www.washingtonpost.com/wp-dyn/content/article/2007/01/26/AR2007012601896_2.html

Images:

Mayer, Gregory (2010) "Corn prices surge to two-year high" Date Viewed: 11th October, 2010. Available online at:

http://www.ft.com/cms/s/0/7ea9b2d0-d502-11df-ad3a-00144feabdc0.html?ftcamp=rss

Student Web (2010) Date Viewed: 11th October, 2010. Available online at:

http://uwstudentweb.uwyo.edu/L/LPETER11/corn2.jpg

The Washington Post (2007) Date Viewed: 11th October, 2010. Available online at:

http://www.washingtonpost.com/wp-dyn/content/article/2007/01/26/AR2007012601896_2.html