Healthy soil and sustainable growing

["TradingPostPaul" <tradingpost@riseup.net>]

http://www.moneyweek.com/file/38738/the-worlds-ever-increasing-
grocery-bill.html
The world's ever-increasing grocery bill

30.11.2007
The average UK family now spends £750 a year more on food than 12
months ago; the world’s grocery bill has jumped by 21% this year;
Russian bread prices have doubled; and three people have been killed
in a cooking-oil stampede in China.

Food inflation is rising sharply as agricultural markets are
straining to keep up with demand, and the “farm crunch”, as Ambrose
Evans-Pritchard puts it in The Daily Telegraph, is far from over.

Over the past 20 years food output has risen by an annual 1.3%, while
population growth has climbed by 1.35%. The global population is set
to jump from 6.6 billion to 8.3 billion by 2030, while mounting
wealth among consumers in developing countries is spurring a shift
towards greater protein consumption. This implies higher demand for
grains, as it takes about 7kg of animal feed, such as soya or corn,
to produce 1kg of meat.

Note that China has now become a net importer of corn for the first
time. The trend towards biofuels is also underpinning demand, while
urbanisation and land degradation are crimping the supply of arable
land.

Credit Suisse calculates that global food production will have to
grow by an annual 3% to cover demand from population growth, changing
diets and the burgeoning biofuels industry. But there is scant
prospect of supply meeting demand. With China losing 0.6% of its
agricultural land a year through urbanisation alone and acreage
expansion potential elsewhere looking limited, arable land supplies
seem unlikely to expand by more than 1% a year.

What’s more, the pace of productivity growth has declined to an
average of 1.3% over the past 20 years, despite the introduction of
genetically modified seeds. Stockpiles are meagre, with US corn
inventories at a 35-year low and the EU’s grain mountains depleted.
Given all this, agricultural prices are set to rise further.

Having lagged behind base metal and energy prices over the past few
years, agricultural prices have risen strongly of late, with wheat
futures up by almost 70% this year and soybeans hitting a 34-year
high over $11 a bushel.

But the agricultural complex is still some way off its all-time
peaks; cotton and corn, for instance, are about 50% below their
records and sugar is about 85% off its 1970s high. “The supercycle
clearly has a long way to run,” says Evans-Pritchard.

With Chinese demand surging, soybean prices look set to test the $12
level, according to Daisuke Yamaguchi of Yukata Shoji Co. And the
outlook for sugar has greatly improved, says Manraaj Singh in Profit
Hunter. Falling production in India and Europe, along with lower
exports from Brazil as more sugar is devoted to ethanol production,
suggests the world could go from a sugar surplus of 11 million tonnes
last season to a deficit of a million this season. Add in increasing
sugar consumption in the developing world as incomes rise, mounting
speculative interest and the growing demand for sugar-based ethanol,
and sugar is worth a punt.

There is a London-listed ETF offering exposure to sugar (SUGA) as
well as other softs, including soybeans (SOYB), while investors can
also track a basket of grains (AGGP) and an agricultural commodities
index (AGAP); see ETF Securities for more details. Consider also Hugh
Hendry’s CF Eclectica Agriculture fund.