World Financial Blog » Commodities
In 2007 more than 850 million people worldwide went hungry, everyday 25.000 of them died of the direct consequences of undernourishment. As if that wouldn´t be bad enough it´s alarming to hear that the number of hungry people has increased dramatically as a result of the enormous increase of the prices for basic foods.
But what´s the reason for the recent price explosion? According to the governments of the industrialised countries also in this case the main inflater is the unstoppable demand of the Asian region and the other emerging markets. On the other side environmental organisations blame bio fuel for the boost.
However in my opinion the problem originated elsewhere and started long before china was trendy and bio fuel a problem. The only thing is that through bio fuel and China the problem came to light. But to explain what i mean let´s go back to the year 1970 when new machines, fertilizers and new kinds of seeds revolutionized the whole agriculture. And as you know when the supply of a commodity grows but the demand stays constant it falls in price and that’s exactly what the agrarian commodities did. Well actually falling prices for food aren´t a bad thing wouldn´t there be the side effect that now thousands of farmers earn nothing anymore. So the governments of the industrialised countries had a fantastic idea, they just paid subsides for all agrarian products of the farmers so that the farmers could survive. The plan worked out the people had food in abundance and the farmers became money for producing too much, there was only one thing the politicians overlooked. Because instead of trowing the overproduces food away the farmers began to sell their commodities to developing countries. It sounds strange but it´s cheaper to carry potatoes from Europe to Africa than growing them there and so the clever industrialised counties began to sell their overproduced food there. After a certain time these governments even liked the idea of selling our goods on the markets of the third world and I guess that´s why the developing countries were not allowed to impose protective duties against this foods. The consequences for the farmers of the developing countries has been disastrous not that they just lost their existence they also lost their farming land because when you don´t use it for a longer period of time it it gets lost. So everything was fine the poor people worked to buy our food and we could use them the win other commodities we needed.
But then during the turn of millennium everything changed china climbed up to a net importer of food and just like China many other emerging market countries built cities on their reproductive land. Also the industrialised countries discovered bio fuel and how higher the oil price gets the more agrarian commodities will be used for that
What is sure is that we have to find a way that every county has the chance to produce its own food only this would solve the problem.
Whats up with the commodities? For 8 months gold, oil and raw materials were running from one record to the next one. I think if somebody had told me that you will pay 100 $ for one barrel oil and 1000 $ for one ounce gold in 2008 I would have assumed him to be crazy. But now through the kindness of the weak dollar caused by the financial crisis we have achieved this values and especially gold seems to be the safest harbour against the crisis-ridden financial markets and inflationary threads. So I ask myself how long can we trigger this harbour ?
In 2006 the German Professor Dr. Max Otto anticipated a Gold-price of 2000 $ per ounce in his book “The crash comes”. First of all he mentioned that in 1980 we payed 852 USD for one ounce sounds less but if you allow for the inflation you get a price of 2200 USD which is 1200 Dollar more than the current stand. Another fact is that till now we just found 135000 tons of gold on our earth. This amount had place in a cube with a page length of 20 meters, and since 1942 there had been no year in which the gold-reserves were growing more than 5 %. So the thing is that the world´s current estimated gold demands amounts 4000 tons per year. However the production capacity just amounts 2500 tons so we actually got a deficit in supply of 1500 tons a year which boosts the price. Also has to be said that the Chinese population is allowed to buy gold since 2002 which wasn´t so before, this again requires extra 36 tons every year. The last reason is that in times of a crisis the gold price always exploded like in 1971-1974 or in 1977 -1980 when it quintupled even though analysts predicted gold would keep on falling in price.
Although these facts are very interesting the current situation at the gold market should be watched very carefully, the break away of the demand of the jewelry industry (the gold-imports of India recently felled of 90 %), and possible sales of the banks of issue could theoretically cause a downward movement.
Note: Normally markets fall faster than they rise and that and the risk that they do this grows everyday so watch your gold.
It´s not a big secret, everybody knows that crude oil is a tight item which is getting more and more expensive. One month ago we achieved the mark of 100 $ per barrel. That is incredible, if you note that this is just a few dollars above the price we payed in the oil crisis of 1970.
Of course, we could blame the weak dollar, speculators, the OPEC, Iraq, Iran, Venezuela or just the cold weather for this enormous price explosion, and if we believe in this reasons the price should go back when this problems have normalised again.
But isn´t there a much more frightening problem which slowly reflects the today´s price of crude oil? What about the fact scientists predicted in the early 90s? I´m talking about the Peak Oil which means that we consume more oil than we produce as a result the oil price would explode. The scientists of the 90s dated the Peak Oil to the year 2010 at least, just a little memento today we got 2008. Another point is the enormous economic growth of the emerging markets which require more and more oil, so the world´s crude oil consumption rises every day. It´s funny to see how much we depend on oil and how careless we waste it, most people even believe that we would need the oil “just” for our cars.
Nowadays however everything is made of crude oil: our clothes, medicine, 90% of all our chemical products and everything else which looks like plastic. There is no day you don´t touch some crude oil except you life alone in the forest, far away from civilisation. So the big question is when exactly we achieve Peak Oil or did we even achieve it yet. In my opinion the price of the period answers this question.