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Published February 08, 2011, 09:07 AM

Stronger dollar moves prices

The saying “cash is king” may be exercised more these days than in the past.

The saying “cash is king” may be exercised more these days than in the past.

While the U.S. dollar continues to correct itself since reaching a low in November, demand by world buyers continues to push prices higher for nearly every form of food.

The well-publicized riots in Egypt and the overthrow of Tunisia’s government has caught the attention of all countries populated by those who have and have not.

While Algeria, Yemen, Jordan and Saudi Arabia have been stepping up to the plate to solidify food imports — namely wheat — bigger countries such China, India and Russia also can fall under the same category. We are seeing a round of protectionism that we have not seen in years. This creates a demand for grains, soy and soyoil, along with meats.

At some point in the future, there will be a back side of the equation when everyone has their coffers full. Populations rapidly are increasing in Asia and demand keeps increasing in an area where people spend 39 percent of their monthly income on food, as opposed to the average U.S. consumer, who spends 10 percent.

Europe has been turning wet, which does not bode well for its wheat. Australia’s wheat is pretty much harvested, but a chunk of it is feed wheat. When it comes to hungry people, countries will pay the bill for whatever it takes to keep their people from rioting and overthrowing their governments. If the U.S. has a hot, dry summer, as the forecast says, U.S. citizens may have to compete with the rest of the world for food. The stage is set, and as winter wanes and spring plantings are done, the world will be on pins and needles watching the weather in the U.S.

Volatility in markets will take on another dimension. USDA recently has talked of increasing maximum Conservation Reserve Program acres to 34 million or 35 million acres, up from the current 31 million acres.

While the dollar declines, is it possible the government wants high prices since agriculture tends to be one sector of the economy that is profitable and helping the trade deficit?

One wonders what it will take to slow the Chinese economy. However, I am hearing of businesses that are backing away from Chinese manufacturing as costs in China have increased 20 percent to 30 percent or more. Still, China remains the manufacturing hub of the world, and where else does one go for cheaper labor? These are interesting times and I suspect we are making history.

The world isn’t going to be the same world as we know it for our children. Nestle’s CEO has halted all operations in Egypt until conditions improve. Families of Nestle staff are being evacuated. The news comes as the head of Egypt’s trade ministry says nothing will change under the new leadership. There is much confusion about the arrival of deliveries, but the government is owning up to temporary holdups in recent weeks caused by an inability by importers to pay taxes because of bank closures. A large grain company in the U.S. says it recently did not load two Panamax vessels with wheat for Egypt because of problems with letters of credit. Interesting times.