Food shortage catastrophe creeping up on the world

…The second major new demand factor is the significant push for biofuels in response to climate change and fears of peak oil. As an example, the US ethanol industry alone will use 104 million tonnes of corn next year to produce ethanol. That is 100% of average annual world coarse grain trade and 6.4% of global cereal grain production.

The factors we have described have been discussed by many people, but what will happen has not been fully grasped by anybody. What this means is that demand for cereals is accelerating away from us in a different way


Where we differ on our forecasts is that we believe we will be living on the edge of massive food shortages for the foreseeable future. The logic behind this is that we believe global tightness in grain stocks will remain for a long time, albeit it with some volatility.

This means the world will be exposed to the risk of a poor harvest for a large part of the foreseeable future. The way the market is likely to play out is as follows.

If farmers produce more grain, then the price will fall back in the short term. This in turn will encourage more people to push cereals into biofuels and into animals. At the same time, grain farmers will get reduced price signals so grain production growth will slow. In time this means that global stocks will fall again, prices will rise and the cycle will repeat itself.

In essence, supply and demand will roughly track each other with periodic widening and narrowing of the gap.

The Age