Forget oil, the new global crisis is food

http://www.financialpost.com/story.html?id=213343


Forget oil, the new global crisis is food
BMO strategist Donald Coxe warns credit crunch and soaring oil prices will pale in comparison to looming catastrophe

Alia McMullen, Financial Post
Published: Friday, January 04, 2008

A new crisis is emerging, a global food catastrophe that will reach further and be more crippling than anything the world has ever seen. The credit crunch and the reverberations of soaring oil prices around the world will pale in comparison to what is about to transpire, Donald Coxe, global portfolio strategist at BMO Financial Group said at the Empire Club's 14th annual investment outlook in Toronto on Thursday.

"It's not a matter of if, but when," he warned investors. "It's going to hit this year hard."

Mr. Coxe said the sharp rise in raw food prices in the past year will intensify in the next few years amid increased demand for meat and dairy products from the growing middle classes of countries such as China and India as well as heavy demand from the biofuels industry.

"The greatest challenge to the world is not US$100 oil; it's getting enough food so that the new middle class can eat the way our middle class does, and that means we've got to expand food output dramatically," he said.

The impact of tighter food supply is already evident in raw food prices, which have risen 22% in the past year.

Mr. Coxe said in an interview that this surge would begin to show in the prices of consumer foods in the next six months. Consumers already paid 6.5% more for food in the past year.

Wheat prices alone have risen 92% in the past year, and yesterday closed at US$9.45 a bushel on the Chicago Board of Trade.

At the centre of the imminent food catastrophe is corn - the main staple of the ethanol industry. The price of corn has risen about 44% over the past 15 months, closing at US$4.66 a bushel on the CBOT yesterday - its best finish since June 1996.

This not only impacts the price of food products made using grains, but also the price of meat, with feed prices for livestock also increasing.

"You're going to have real problems in countries that are food short, because we're already getting embargoes on food exports from countries, who were trying desperately to sell their stuff before, but now they're embargoing exports," he said, citing Russia and India as examples.

"Those who have food are going to have a big edge."

With 54% of the world's corn supply grown in America's mid-west, the U.S. is one of those countries with an edge.

But Mr. Coxe warned U.S. corn exports were in danger of seizing up in about three years if the country continues to subsidize ethanol production. Biofuels are expected to eat up about a third of America's grain harvest in 2007.

The amount of U.S. grain currently stored for following seasons was the lowest on record, relative to consumption, he said.

"You should be there for it fully-hedged by having access to those stocks that benefit from rising food prices."

He said there are about two dozen stocks in the world that are going to redefine the world's food supplies, and "those stocks will have a precious value as we move forward."

Mr. Coxe said crop yields around the world need to increase to something close to what is achieved in the state of Illinois, which produces over 200 corn bushes an acre compared with an average 30 bushes an acre in the rest of the world.

"That will be done with more fertilizer, with genetically modified seeds, and with advanced machinery and technology," he said.

 

I'll take this opportunity to go on one of my rants about global warming alarmism and alternative energy sources.

This story is just the tip of the iceberg, folks. Renewable energy is one of the greatest scams perpetrated upon the human race, fueled by the scaremongering of the global warming alarmist crowd.

Don't get me wrong, pollution is not a good thing, and we should always be conscious of doing the things we can to reduce it. It's just a giant leap from man polluting the air and water to man causing a global apocalypse that's due any day now if we don't take action according to Al Gore's plans.

<div class='quotetop'>QUOTE </div><div class='quotemain'>But Mr. Coxe warned U.S. corn exports were in danger of seizing up in about three years if the country continues to subsidize ethanol production. Biofuels are expected to eat up about a third of America's grain harvest in 2007.

The amount of U.S. grain currently stored for following seasons was the lowest on record, relative to consumption, he said.</div>

The key word bolded above is "SUBSIDIZE." Get it? Follow the money! We're talking about a constant stream of $billions every year. Who's benefitting from the subsidies? Those same scientists forecasting doom and gloom, the ethanol lobby, big agricutlure corporations like ADM, to a much lesser degree, family farms, and companies established to take advantage of the histeria (alternative/renewable energy companies).

The unvarnished truth is that alternative energy is the hoax. One of the most basic laws of physics is that you can't create more energy from a reaction than you put in. There's no such thing as a perpetual motion machine, or we could harness that for all the energy we'd need forever!

Let's look at some of the various alternative energy sources.

Solar. For starters, there simply isn't enough energy coming to the ground from the sun in the first place (I can show mathematical proofs if you like). And then that law of physics comes into play - it simply costs more energy to make the solar cells than they'll ever produce. The fact of the matter is that the more solar is deployed, the less a % of all energy produced is from solar.

Wind. Again, you have upstream costs. By this I mean you are burning coal or oil somewhere to create the energy needed to make a windmill. The windmills cost more energy, again, to produce than they'll ever produce in their lifetimes.

An obvious problem with Solar and Wind power is that you don't get power from solar at night, and you don't get power from wind on a day it's not windy. So you have to store the electricity in batteries, which again have upstream costs, short lifetimes (have to replace the batteries within a few short years), and they're less than 100% efficient (you get out less energy than you put in to charge them).

Fuel Cells. The upstream costs are in making the hydrogen. It's absurdly expensive, too, in terms of how much energy required to make the hydrogen and the $$$/economics of it all.

Ethanol. People like to point to Brazil's "successful" ethanol program, yet it is both filled with problems and ultimately not all that it's cracked up to be. First, it is a heavily susidized effort, so something else is being sacrificed by definition. Second, Brazil's general energy use is radically different from a 1st world nation (no air conditioning, for example), and the people are so poor that relatively few drive cars. Growing the sugar to produce ethanol involves slave labor ($100/month wages). After three decades of ethanol production, it only provides 20%-25% of their fuel - to produce 100% would take way more land and they'd have no food to eat. They also produce more pollution from burning the cane fields (that's part of growing sugar cane) than the fossil fuels would have produced.

The article above talks about the devastating effect ethanol production is having on the US food supply and economy. Corn that used to feed cattle is now turned into ethanol and the price of beef is going up. If we somehow decided to produce 100% of our fuel as ethanol, we don't have enough land for that, let alone to grow the food we need, and the excess we've had all along to help feed the rest of the world.

Ethanol also must be purified at the end of the processing, which is an upstream cost. It is far too easily tainted by even small amounts of water. It cannot be shipped around through pipes or in tanker trucks/railcars for long distances. You have to grow the crop, and produce the fuel as close to the gas station as possible.

There are four actually viable source of energy for widespread consumption: fossil fuel, coal, hyrdo-electric dams, and nuclear. The first two are seriously problematic in the amount of pollution caused by burning gas or coal. Hydro-electric dams produce a near infinite and cheap amount of energy, but it is devastating to the ecology. That leaves nuclear.

I am absolutely a proponent of nuclear energy. Remember that rule of physics? e=mc²!

For the longest time in the early days of nuclear research, the reactions took more energy to create than they produced. And then they discovered the chain reaction. It's a nuclear process, not a chemical one.

Nuclear has three real issues/obstacles facing it. Security is obviously a concern in the post 9/11 era - if terrorists could comrpomise an energy plant, the devastation could be horrific. Then there's the waste, which has to be handled carefully and properly; it's poison of the first order. And there's the hysterical fear of it that's been fostered by decades (China Syndrome, 3 Mile Island).

Yet nuclear power provides an infinite amount of cheap energy without polluting (waste is not pollution). There's no reason to fear it, nor the waste, and I think we can deal with security concerns. The power can be shipped around on our existing power grid without modifications. The amount of waste created by a family of 4's energy needs for 20 years is about the size of a bic lighter.

France generates 76% of its electricity with 56 nuclear plants. They are the model to look at for how we should implement our own program. They use a single plan for each of the plants, which makes them cheaper and easier to build. The plants create all kinds of high tech jobs wherever they were built. They reprocess the spent fuel into lesser radioactive materials, which is forbidden by a Jimmy Carter era law here in the USA (should abolish that!). They encase the waste in a form of glass that is indestructable - I've seen films of them dropped from airplanes and surviving train collisions without being broken open.

About 100 miles from my house is a place called Yucca Mountain. It's in the middle of the desert where few people live or go. It gets little rain so there's little to fear from ground water seepage. The US govt. has tabbed it as the place to store our waste, and I for one am all for it, though it is being used by a political football (follow the money!).