More on World Food Prices

Liz Ann Sonders has issued market commentary on world food prices. A couple of interesting points:

Americans Spending More on Food

'Most families in the United States can make adjustments around the rising cost of food (and gas) by simply cutting out other discretionary purchases. That being said, the discretionary portion of disposable personal income is at an all-time record low as the amount needed for nondiscretionary or essential items is at a record high, as you can see in the chart below.'

'So, we eat fewer carbohydrates, dine out less, and (perish the thought) drink less beer and liquor while forgoing other luxuries. But many people in developing countries have no such options, and the crisis means elevated risk of actual starvation.'

Most Americans would agree that they are spending more on food over the past year. As the amount of income used to purchase non-discretionary purchases it leaves a lot less available to buy all the other goodies Americans have bought in the past. If inflation continues, we will not be able to spend our way out of the recession, or whatever you want to call this current period.

Will this be the death of the American Consumer?

Some Countries Will Fair Better Than Others

'Of course, rising food inflation hurts some places more than others. The net sellers/producers, notably those with self-sufficient farmers, are the beneficiaries (i.e., Thailand is the world's largest exporter of rice); but those that are net buyers/importers are in dire straits (West Africa and Bangladesh are prime examples). The ability to respond to the crisis varies from region to region, as well.'

'(T)wo charts below, the first for stock markets in countries that are net beneficiaries (net producers) of food inflation, and the second for stock markets in countries where food comprises a larger share (at least one-third) of the consumption basket of the population. With China representing a significant weight in the MSCI Emerging Markets Index, it's no wonder the asset class has moved close to the bottom of the performance rankings so far in 2008.

Winners:

Losers:

Will food stuffs become the next great resource? Food has always played an important part in a country's/society's development. Once people were able to implement farming techniques, the population expanded and workers were able to specialize. Without framing, we would still be hunters and gathers living in caves.

At the rate food prices are heading, there might be a re-migration to the rural areas of America. Instead of kids escaping small towns, big city folk will head out to small towns to farm.

Will this usher in a period of a return to farming?

Here is an earlier post on world food prices and a post on commodities.

Source:
'Beast of Burden: A Global Food Crisis Erupts', by Liz Ann Sonders, Charles Schwab