Wednesday, May 11, 2011

More on Grantham's 'Paradigm Shift' in Commodities: "So Who's Right and Who's Wrong? Henderson or Grantham?"

This appears to have become an ongoing series, links below.
From Big Picture Agriculture:
Jason Henderson, economist based at the Omaha Branch of the Federal Reserve Bank of Kansas City, has come out with a new publication titled, "Building U.S. Agricultural Exports: One BRIC at a Time." Increasing agricultural exports is an obvious goal of this administration trying desperately to improve our nation's balance sheet.

Normally, a low dollar aids our nation in increasing agriculture commodity exports, but ironically we seem to be killing that benefit these days in our corn ethanol program. Last week, corn exports were down despite extremely low stocks globally and news of poor planting season weather. Demand has been curtailed by corn's high price which has spilled over to high prices of soy, wheat, meat, dairy, oils and eggs.

While Jeremy Grantham and Lester Brown are "sky is falling" predictors of gloom for agriculture, Henderson seems to fear the exact opposite. In fact, he is worried about our ability to increase our Ag exports due to "fierce competition." This is really quite remarkable and echoes what I've suggested as a possibility many times, here on this blog.

Here's Henderson:

If BRIC countries continue to expand their livestock production, U.S. crop producers may benefit the most from rising protein demand, although competition for these markets will be fierce. ... The article concludes that, as BRIC countries increasingly try to satisfy their growing demand for proteins with domestic livestock production, the sharpest gains in U.S. exports may not emerge from protein but from feed crops. Yet, even these bright opportunities may be dulled as BRIC countries bolster their own grain production.
As the BRIC nations increase efficiency of their livestock production methods, they will gain a great amount of productivity, meeting much of their own new meat demand. Ditto for grain needs....MUCH MORE, including some interesting charts.
HT chain: Reformed Broker who writes:
Farmer Brown here.

Here's something we should all be paying close attention to in Agland...

Many of us have taken it as a given that increasing demand for proteins in the BRICs means an inevitable upward trajectory in both ag commodity prices as well as exports from American farmers.  Jeremy Grantham made this case in terms of both food and energy raw materials in his latest letter for GMO.

But what if the BRICs themselves come on strong with feed crop production of their own?  What if the competition to feed the BRICs and beyond gets a whole lot fiercer than what many are expecting?
This would be the polar opposite of the consensus view that we'll never be able to grow enough to feed the next billion mouths, let alone the 9 billion expected by 2050....MORE
HT: FT Alphaville's Further Reading 

April 26 
The End of Cheap Commodities (or not)
April 26 
Commodities Have Reached a Permanantly High Plateau* (or not)
April 29 
Commodity Prices tend to be Mean-Reverting (cotton)

May 3 
Commodities: "The Case for Human Ingenuity"
May 5 
Commodities: Did Jeremy Grantham's 'Paradigm Shift' Letter Call the Intermediate-term Top

May 9 
"What Grantham Got Wrong About Commodities"