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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Tuesday, June 24, 2008


Below, we explore the world grain situation. This is important. But as we have been studying and writing these last two days, we have watched in horror as the government police actions in Zimbabwe have ruined the upcoming election runoff. We honor Morgan Tsvangirai for the hard choice he made to step aside to try to prevent further pain to his supporters. We pray for Robert Mugabe – what else can you do?

Whatever words we can conceive for this purpose, we can likely do no better than to repeat here from Presiding Bishop Jefferts-Schori's recent statement on this cruelty:

I urge all Episcopalians to continue to pray, in the name of the Prince of Peace, for the people of Zimbabwe. In a land that has suffered so greatly in recent years as a result of 165,000 percent inflation, 80 percent unemployment, and poverty so drastic that life expectancy is now only in the mid-30s, the need for healing and transformation could not be more urgent. May God, "in whose perfect kingdom no sword is drawn but the sword of righteousness, and no strength known but the strength of love," grant wisdom, courage, and strength to the people of Zimbabwe and to all who work for an end to that great land's current strife.

The Presiding Bishop
May 6, 2008

Grain Supply and Demand

We talked here about food prices just two weeks ago. As you might have been hearing, commodity prices have gone up still more since then. Corn, which was around $6.50/bushel when we wrote on June 6, reached $7.60 last Monday, June 16, and trades this morning at about $7.20. Floods in the Corn Belt region are a major reason and we'll come back to that later. Rice hovers right at $20/CWT (hundredweight = 100 pounds) about where it was on June 6 and off its peak of nearly $25 in late April. Wheat, which we didn't mention last time, is $8.69/bushel this morning; it pierced $9.00 during last week, but is off from a high of $12.72 in late March. By comparison, wheat traded around $3.50 from 2002-2005. All of these are futures prices on the Chicago Board of Trade for the most active "nearby" contract. The "CBOT" is the world's leading agricultural commodity market.

How long prices can stay at these extraordinary levels depends on the origin of their recent surge. In all cases, rising demand from consumers in emerging markets is playing some role, reflecting the interaction of better diets and higher incomes. This might be termed a "structural" shift, and while we applaud their higher standard of living, it will give prices an upward bias that is likely to be sustained.*

Weather Has Hurt Crops; Recovery Foreseen
On the other hand, a more transitional force can come from weather as it impacts individual crops. This was true for wheat over the last few years, but that seems to be correcting now. Australia is one of the main wheat exporters, but drought there hurt the harvest for three of the last six years. In the middle, the US and Europe also both had bad crops. Inventories of wheat fell sharply. However, these areas are now all experiencing recovery, along with other growing regions, and the US Department of Agriculture (USDA) projects more sizable wheat supplies following the current US harvest. Supplies of rice have been flat in recent years, but recent USDA estimates suggest steadier expansion may be resuming. The release of export bans in several countries should also ease supplies for users elsewhere.

Corn is presently buffeted by both supply and demand factors. The now receding Midwest floods struck the two biggest corn-producing states, Iowa and Illinois. A report from USDA due next Monday, June 30, will include a preliminary estimate of the hit to effective acreage from the flood; estimates of the crop planted had already been decreased a bit due to inclement weather in May, just when planting was supposed to be taking place. Fortunately, last year's US crop was enormous, contributing to record world production. And current USDA projections show foreign production continuing to expand in the current crop year. Major corn growers include China, Argentina, Brazil and the Former Soviet Union. Exports are notable from Argentina, Brazil, the Ukraine and South Africa, besides the US.

Ethanol Adds Pressure
The corn demand situation is complicated by the increasing use of the grain for bio-fuels ethanol. As we noted last time, ethanol is anticipated to absorb 30% or more of the corn crop presently in process, or 4 billion bushels (101.6 million metric tons). This amount is almost double the volume from the 2006 crop and 33% more than in the 2007 crop. The entire US crop is estimated at about 38% of the world total, and US ethanol usage alone would absorb 13% of the total world production.

The USDA's expectation is that some of the supply of corn for ethanol will come from the amount allotted for animal feed, which would be cut sharply, from 6.15 billion bushels (156 million tons) last year to 5.15 billion (131 million tons) from the new crop. A least some of the shortfall in feed grain is expected to come from increased use of sorghum and of wheat, the latter helped by a projected increase in US production, noted above, that could be the largest amount in 10 years.

Assuming this pattern of grain usage substitution, the Agriculture Department projects that US consumption of corn will be the same from this year's crop as it was from last year's crop. This seems to us a somewhat conservative forecast for consumption, although we haven't previously monitored USDA data consistently. You can bet we'll be doing so with great regularity in coming months to see how these expectations play out. As it stands, even under these conditions, US domestic consumption would be larger than its production, limiting exports and putting inventories of corn by this time next year at the lowest in the US since 1996 and the smallest world total since 1984.

Yields Could Be Helped, Possibly Even in US
One other point we want to make about world grain supplies. We mentioned last time that supplies can be increased by more planting and by better farming methods that raise yields. As we've examined these agricultural numbers lately, one aspect that stands out is the wide variation in crop yields around the world. As an example, for wheat, China and Europe are the leading producers; last year, China got 4.76 tons per hectare harvested (hectare is the metric land measure; 1 equals 2.471 acres) and Europe, 4.84. By contrast, the US was at 2.72, India at 2.69 and the Former Soviet Union (Russia and 11 other countries) a mere 1.95 tons per hectare. Certainly land quality varies considerably and likely accounts for a good part of these differences. But planting and cultivation methods also make great differences. And, to be blunt, we're surprised at the US figure and have to believe that Kansas prairies (our own home territory) could do better than this.

In one approach to raising yields, the recent Food and Agriculture Organization (FAO) conference on food security discussed a Second Green Revolution. The First Green Revolution occurred in the 1960s and 1970s and featured hybrid seeds and better insecticides and fertilizers. About moving forward from here, we like the reasoned approach of a recent Christian Science Monitor discussion (June 3): "[the first green revolution] relied too much on the assumption of cheap oil and on farmers' ability to afford expensive pesticides and chemical fertilizers. The easy gains in productivity were also based on building massive irrigation systems. A smarter revolution will need to consider many more variables, such as global warming, new types of nonpetroleum energy, and better ways of watering (such as drip systems)."

While none of this sounds simple, today's high prices and spreading hunger should help get us started in the right direction. Clearly, there's much more to consider, especially including governments' equally widely varying agricultural policies. We've been so concerned for so long about the minutiae of consuming and investing, but all at once, we're refocused on what's really basic: having enough to eat.

*European Commission, Directorate-General for Agriculture and Rural Development. "Issues paper on high food prices", Staff Working Paper. Brussels: May 6, 2008.

Monday, June 16, 2008

Prayers for Tim Russert

Ways of the World represents an unusual cross between religion and secular living. That phrase applies as well to Tim Russert. We've pondered since Friday how to remember him here. Surely we must do that, for he excelled in his work and exemplified for us how some people can experience their worldly career as a "calling". What better kind of person can we speak of here?

Finally, just a little while ago, we remembered: our Prayer Book includes a petition "For those who Influence Public Opinion. Here it is, along with a most fitting offering from the Burial Office.

Almighty God, you proclaim your truth in every age by many voices: Direct, in our time, we pray, those who speak where many listen and write what many read; that they may do their part in making the heart of this people wise, its mind sound, and its will righteous; to the honor of Jesus Christ our Lord. Amen.

O God, whose days are without end, and whose mercies cannot be numbered: Make us, we pray, deeply aware of the shortness and uncertainty of human life; and let your Holy Spirit lead us in holiness and righteousness all our days; that, when we shall have served you in our generation, we may be gathered to our ancestors, having the testimony of a good conscience, in the communion of the Catholic Church, in the confidence of a certain faith, in the comfort of a religious and holy hope, in favor with you, our God, and in perfect charity with the world. All this we ask through Jesus Christ our Lord. Amen.

The Book of Common Prayer,
Pages 827 and 504

May his soul and those of all the faithful departed rest in peace. Amen.

We also remember his Wife Maureen, Son Luke and Father "Big Russ".

Sunday, June 08, 2008


We've been thinking about "FOOD!" for sometime now, especially as our own grocery bills continue to climb. Rising food prices hurt you and me – and they hurt others in other countries even more. This past week the UN's Food and Agriculture Organization conducted a "High-Level Conference" in Rome on "Food Security", highlighting the worldwide nature of the issues in the most fundamental human concern, having enough to eat. Numerous world leaders attended.

We first wrote about this emerging problem in December, [click here], as the world price of rice was surging to new highs. At that time, the futures price of "rough rice" on the Chicago Board of Trade commodity exchange was about $13.50/hundredweight (100 pounds). This turned out to be only the beginning. This price continued on up and peaked in late April almost twice as high, at nearly $25.00! These levels compare to an average over recent years of less than $8.00 and a previous record of $12.32 at the end of 1996. In the last several weeks, there has been a bit of relief, as the price backed off to below $20 in late May. In light of the dramatic cost increases for this basic, nutritious food item, we urged you in December to give generously to the UN's World Food Program and to Episcopal Relief & Development's food security efforts. This recommendation obviously still stands. In fact, the need is much greater now.

Other crops show similar patterns. Corn has been hovering right at $6.00/bushel, a mind-boggling difference from the average of about $2.55 over the last dozen years or so. It jumped just the last couple of days to about $6.50. Soybeans had been $6.13/bushel on average before their current price explosion began last summer, but lately they have been more than twice that, roundly $14.00; they spiked to a high of nearly $16.00 at the end of February.

You and I are feeling these prices in our own grocery shopping, and we'll come back to that in a later article. Today, following the meeting of world leaders in Rome, we'll talk about some other countries' experiences. Hardest first.

The FAO background material highlights the problems for a variety of poor countries. They list 22 that import virtually all of their petroleum, substantial portions of their grains, and have significant shares of their population who are undernourished. We direct you to the report for the entire list.* Some of the familiar ones for us are Botswana, with 76% of its grain imported and 32% of its people undernourished, Haiti with 72% grain imports and 46% undernourished and Liberia at 62% imports and 50% malnourished. Because these countries are big importers, they face sizable widening of their balance of payments "current account" deficits as well as the impact of higher prices on their people's ability to buy food.

But other, better developed economies are strained as well. Last week, the European Commission's statistical arm Eurostat published a compilation of consumer food prices in the 27 members of the EU. It's especially interesting that the "middle income" countries are suffering more food inflation than the leaders. Over the last 12 months, Germany has seen a 6.4% increase in overall food prices and 8.4% in breads and cereals. Spain, 6.8% in total food and 10.1% in breads and cereals. These would seem to be bad enough. But mid-range Bulgaria has had 25.4% in total food inflation and 38.4% in breads and cereals. Lithuania, 18.1% and 26.6%. Even Slovenia, a rapidly invigorating economy and one belonging to the Euro Area (using the euro as its currency), has suffered 12.2% food price increases and 16.9% in breads and cereals.

I wish I could explain why the poorer countries and those just really building up their living standards get hit with larger price increases than those that are already highly developed and therefore better able to withstand the hardship. At first, it seemed that exchange rates might account for the differences between Lithuania, for example, and Germany. But Lithuania and Bulgaria both fix their currencies to the euro, and as noted, Slovenia is a member of the Euro Area, so it is not weakness among any of the European currencies that produces differences in their food inflation. We could speculate that differences in the development of food production and distribution mean prices can increase more in one country than another. Even so, we note that according to Wikipedia, there are numerous supermarket chains in Bulgaria and some in the other two mid-range countries we mention here. Varying government agricultural and trade policies may also be factors. But without much more extensive research, we can't answer this well – and we're not sure anyone has done so.

One expectation we can voice, taking a note from the FAO report, is that high farm prices should bring about more farming, expanding supplies and providing some price relief. Not much will help in this growing season, but beginning next year, perhaps more land can be cultivated and improved farming practices will help increase yields. The FAO's conference was instrumental in bringing renewed emphasis on such supply-oriented efforts. The conference leaders had hoped, too, to convince countries to liberalize trade policies, and some participants made offers to do so, such as lifting export bans on rice. But not all did. What did come out of the meeting was promises of larger amounts of food aid, in particular, $1.2 billion from the World Food Program, financed by a sizable donation from Saudi Arabia. Often, press reports explain, such promises of larger food aid turn out to be old money given a new name. But this is a genuinely new gift and is significant.**

There's much more to talk about regarding the world food situation. We want to discuss overall supply and demand conditions, including the impact of biofuels. We are surprised to see, for instance, that current US Department of Agriculture projections show 4 billion of this year's expected 12-billion-bushel US corn crop are to be devoted to ethanol production, fully one-third of the entire domestic corn output. And we will return in still another commentary to where we started today: this is hitting the pocketbooks of ordinary Americans, and it's not likely to reverse soon, so we want to understand more.

*"Soaring Food Prices: Fact, Perspectives, Impacts and Actions Required". Food and Agriculture Organization of the United Nations. April 2008. Available on the FAO's website.

**"Only a Few Green Shoots." The Economist, June 7th, 2008, pages 70-71.

Episcopal Relief & Development, as noted above, is active in the relief effort. Their work in Haiti was described in an EpiscopalLife online article just this past Wednesday, "In Haiti, Episcopalians respond to food price crisis" . Once again, we can't urge you often enough to contribute to this extremely worthwhile cause. Go to to donate.

Friday, June 06, 2008

"America at Its Best"

We have a post brewing on food, and we'll likely put it up during the weekend. But the identity of the Presidential candidates was determined this past week and, while these columns neither can nor will express preferences in this race, we can't let this historic moment pass without comment. Indeed, we are so taken by the new issue of The Economist that we bring you an excerpt from its cover "leader". So frequently, we get tied up in the media spin on events that the bigger picture eludes us. But the Brits who observe us from across the Pond have a different perspective. Occasionally, it's pretty critical. This week, though, they're proud of their former colony:

IT IS hard to believe after all the thrills and spills, but the real presidential race is only now beginning. In any other country, the incredible circus that has marked the past year could not have occurred. The business of choosing the main contenders for the top job would have been done behind closed doors, or with a limited franchise and a few weeks of campaigning. Hillary Clinton and Barack Obama, by contrast, have spent well over a year in the most testing and public circumstances imaginable—and that was just to get to the final five months.

The Republicans settled on their candidate more quickly, but theirs was still a marathon by anyone else's standards. And the end of it was surely the right result. In John McCain, the Republicans chose a man whose political courage has led him constantly to attempt to forge bipartisan deals and to speak out against the Bush administration when it went wrong. Conservatives may hate him, but even they can see that he offers the party its only realistic hope in November.

The Democratic race has been longer and nastier; but on June 3rd it too produced probably the right result. Over the past 16 months, the organisational skills and the characters of the two contenders have been revealed. Mrs Clinton, surprisingly in the light of all her claimed experience, was shown up for running a less professional and nimble campaign than her untested rival. She has also displayed what some voters have perceived as a mean streak and others (not enough, though) saw as gritty determination. And she could never allay confusion about the future role of her husband.

Mr Obama has demonstrated charisma, coolness under fire and an impressive understanding of the transforming power of technology in modern politics. Beating the mighty Clinton machine is an astonishing achievement. Even greater though, is his achievement in becoming the first black presidential nominee of either political party. For a country whose past is disfigured by slavery, segregation and unequal voting rights, this is a moment to celebrate. America's history of reinventing and perfecting itself has acquired another page.
. . . .

Both candidates have their flaws and their admirable points; the doughty but sometimes cranky old warrior makes a fine contrast with the inspirational but sometimes vaporous young visionary. Voters now have those five months to study them before making up their minds. But, on the face of it, this is the most impressive choice America has had for a very long time.

The Economist, Volume 387 Number 8583, June 7th, 2008, cover and page 15.

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