Wednesday, August 1, 2012

Don't feel sorry for Midwest farmers - developing countries will feel the pain



The "Great Drought of '12" is one for the history books.  Farmers are losing their entire crops in the Midwest, but the real problems are only just beginning around the globe. Developing countries that have been food importers are going to have to pay-up for food and the price is going to be steep. Food inflation in many countries will be on the rise. This will make for an even more difficult situation as growth rates in many of these same countriies are decline. After exporting the financial crisis, the developed world is now exporting food inflation. 

The top grain importers (wheat, rice, soybeans, and corn) are:

China
Japan
Egypt
Mexico 
South Korea 
Indonesia

Each of these countries have some unique food importation problems. For example, the staple food in Mexico is corn. They have in the past been active buyers of corn futures and this is likely to again be the case. Egypt, which was the breadbasket of the ancient world, needs wheat for bread. South Korea is a large importer of feed. The same applies to China. 

The risk of food riots is real. A catalyst for the Arab Spring was food shortages in the Arab world. The fear of many governments is there will not be foodstuffs to feed the population, so demand will be inelastic if the funds are available

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