Is a Food Bubble Coming?

Is the Many of you may remember back in 2008 - as our economy was heading into full meltdown - there was also a food crisis hitting the entire globe. The price of wheat skyrocketed - creating panic around the world. 2008 became the first year in human history that the population of those who went hungry increased - an increase of more than 250 million people - in a single year! More than a billion people bordered on starvation. The food crisis was even felt in America where 49 million people struggled to feed themselves and demand for food stamps and soup kitchens increased considerably.

It was chaos.

But there was something strange about the 2008 food crisis and the price of wheat that caused it. Simply - there was no shortage of wheat. In fact - 2008 yielded the largest amount of wheat in the history of the world! 657 million bushels weren't sold at all! There was a record breaking surplus! So - with such an enormous supply of wheat - what caused prices to shoot up?

The answer is on Wall St.

In 1991 - Goldman Sachs was looking for another financial instrument to sell. They were tired of speculating with debt and real estate and realized the new horizon was food. So they created an index of commodities like cattle - corn - and wheat - that they could then sell to investors. As more and more investors bought into the food index - prices began to rise. So despite there being plenty of wheat - prices continued to climb thanks to investors purchasing more and more future food commodities. And in 2008 - "The Economist" noted that food prices had increased to a level not seen since 1845.

A bubble was being created - thanks to Goldman Sachs.

But - as then Chairman of the Kansas City Board of Trade pointed out, "This isn't just any commodity - It is food - and people need to eat." He was right - Wall Street bankers had manipulated the price of the most basic need for everyone on the planet - food - and the effects of the gamble rippled across the entire globe with hundreds of thousand of people dying of starvation. Meanwhile Goldman made a killing in profits - literally. Eventually - the bubble bursted and prices returned to normal - but the damage was already done. The food crisis of 2008 was merely a by-product of loose oversight in our markets and millionaires and billionaires who had more money than they knew what to do with - thanks to the Reagan and Bush tax cuts.

This should be a lesson learned, right?

In today's "Financial Times" there was a story about food prices in the US spiking again. Due to extreme weather the US Agriculture Department once again cut crop forecasts and warned of a shortage in grain production. Corn yield estimates have now been cut for a third month in a row causing the price to jump to $6 a bushel for the first time since back in 2008. Cotton and soybeans also posted high prices reminiscent of the 2008 global food crisis. As food prices are on the rise - will Wall St. jump in the game again? After all - what else are they going to do with their billions?

Rinse, wash, repeat.


Uncle Geo's picture
Uncle Geo 13 years 32 weeks ago

Hey, no problemo; I'm sure those twinkies I stockpiled back in the 70s are still fine.

The fatal flaw in the unfettered free market theory is that it makes no provision for greed. Greedy people, with help from greedy politicians, always game the system. Regulation happens when citizens exercise their right to protect themselves from the threat (foreign or domestic) of greed.

In theory, a completely free market makes sense. In practice you need to sit on the greedy bastards so they don't poop all over the commons.

JKinLBC's picture
JKinLBC 13 years 32 weeks ago

Shopping at farmers markets, planting a garden, and avoiding the factory farm products (corn, beef, chicken, non-organic soy products) can give you a bit of a hedge on a speculative food bubble...

downn2 13 years 32 weeks ago

No problem I've invested in companies (stock market) who's main commodity is food. And oh yea, let not forget those companies who produce toilet paper too......The 2 basic needs of mankind..... As I now can easily affored whatever.. Thus, as the price of food goes up & does the industry's Co's's a no brainer

anastasi's picture
anastasi 13 years 32 weeks ago

I grow as much of my own as possible. This year, I'm trying some winter wheat. It may not be much, but every home grown side dish is less money to Archer Daniels Midland and
Beatrice, not to mention a smaller carbon footprint. If I could only get away with plowing under my lawn and growing grain in my entire yard....

ecoalex 13 years 32 weeks ago

The derivitive traders add nothing but price.They are parasites,who kill,and cause suffering .They trade in our necessities.No government will take them on.There are no regulations, it's the only economic sector like this,the Wild West of investments,low or no taxes too.TARP money is flooding into it, causing food fuel and other prices way up.

stonesphear's picture
stonesphear 13 years 32 weeks ago

What stands out here is that manipulating resource doesn't produce sustenance. If done properly it may induce sustenance , if done improperly it induces unjustifiable suffering at a lethal level. You can't eat the product Wall Street exploits. You can't feed yourself on manipulation. A farmer can't make ends meet getting his product to the consumer once his product is converted to ink on paper in the commodities market. Wall Street produces ink on paper the farmer produces bread on the table. So what's for dinner ?

jsemanie's picture
jsemanie 13 years 32 weeks ago

Buy local - learn to grow your own, preserve your own, store your own. Know your local farmers. No farms no food. Small will be the way of the future, how many more egg recalls will it take for you to consider owning your own chickens (or get your eggs from someone you know). Our system of producing food is broken and no one even knows where there food comes from anymore (other than styrofoam containers in the supermarket). I'm a docent at Old Sturbridge Village and it just shocks me that kids don't know what a pig or chicken look like and then can't remotely relate to the fact that that's what they are served for dinner. Talk about the dumbing down of America.

stonesphear's picture
stonesphear 13 years 31 weeks ago

Buy local, learn to grow.

This is sound advice but dependence on petroleum and the population it supports falls way short of the hope in the wisdom of this on balance to the suffering that ensues on a global scale in a circumstance in which lively hoods are dependent on distribution and minipulation rather than production. It is an unfortunate situation but it is a situation we have no choice but come to grips with. Wise choices can contribute in overcoming the grief of it all but the grief remains as we go forward. Loafs and Fishes. There is enough to go around but after greed there is not enough left over.

markincorsicana 13 years 31 weeks ago

Ireland was producing enough food to feed the people during The Great Famine. The grain was exported by the British landlords while the Catholic Irish starved by the millions. If the market can be nearly cornered in silver in the 70'-80's or cocoa this year, what will stop The Current Masters of the Universe from exploiting the inefficiencies of The Free Market as they careen their free market food wagon to catastrophe and profits over the bodies of millions worldwide. \Surely we must educate the poor of the world to visit their local farmer's markets and invest their extra dinars in the appropriate company stocks.\ sarcasm

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