Food & Crude: It's Gonna Be a Long, Cold Winter

Food and crude: two things we can't live without. With the stated aim of QE2 being inflation, we shouldn't be too surprised that the prices of vital goods are likely to rise in the near term. Add to that a falling dollar and disappointing crop yields this year, and we've got a potentially ugly situation on our hands. With unemployment near 10%, and real unemployment more than half again as bad, a significant number of Americans are facing a long, cold, and potentially hungry winter.

Some forecasts are calling for triple-digit crude oil again, just in time for a winter projected by some to be the coldest in 1,000 years. While I have my doubts about the coldest winter forecasts, I have no trouble believing that crude will go over $100 a barrel shortly, and that is a scary notion for people who are barely hanging on financially. In fact, the National Energy Assistance Directors' Association is forecasting that 10 million American households will not be able to afford heat this winter.

Things are no better on the food and fiber front. The USDA was forced to revise crop yields lower for a third consecutive month on Tuesday. Corn is now near $6 a bushel and we've got "beans in the teens". Wheat for March delivery is almost $7.50 a bushel. Cotton's off the charts. Wanna know how serious this really is? Carlsberg, the brewer, is warning about beer price hikes because of the rising cost of barley and hops.


The USDA said corn yields in the US, the world’s largest grower and exporter, would be 154.3 bushels per acre, down 1.5 bushels from an October forecast that was also a sharp downward revision. At 827m bushels, stocks left over from this year’s harvest would be the lowest in 15 years. Record US ethanol production has added to demand.

China’s surging demand looms large in cotton. The USDA took the rare step of lowering estimates of China’s 2010 supply cushion, citing “shortages in mill inventories”.

The USDA reduced its cotton demand estimate because of “supplies insufficient to meet demand”.

Mike Stevens, a veteran Louisiana cotton broker, said: “The report is the most bullish in our lifetime.”

Food price inflation rose at an annual rate of 8 per cent in China in September, according to USDA, whilst food inflation in the US has so far been tame, with the food index rising 1.4 per cent over the past 12 months.

This is all bad news for unemployed consumers facing a harsh winter. Even government assistance with heating costs doesn't come close to covering it. Add rising food costs to the equation, and we could see millions of Americans being forced to choose between food or warmth.

Not since the Depression have we as a nation been faced with such dire circumstances. I hope every American family finds a way to make it through. I've been hungry and cold in my life, and it's not something I'd wish on anyone.

I can't think of a stronger argument for self-sufficiency going forward. Here's hoping we see an explosion in victory gardens this Spring. You have to look out for yourselves, guys, because no one else will.

Take care, have a great weekend, and be sure to tune into the next episode of NSFW on Sunday!

 
Best Response
Edmundo Braverman:
In fact, the National Energy Assistance Directors' Association is forecasting that 10 million American households will not be able to afford heat this winter.

I have been reading a few bits since late summer/ early fall suggesting to lock in prices with suppliers because inevitable high heating costs were waiting to attack this winter (all depending if the fixed rate and market price check out). I'm sure these things are easy to miss for some; especially for those who are more concerned about the next source of "unsteady" income being as the article implied that those with unemployment issues were hit the hardest with heating costs.

In 1976, James Hunt broke the sound barrier through Eau Rouge only to retire before the event finished... following the race he had sex with three Belgian nurses at the clubhouse near La Source.
 

We control 30% of the world's arable land

And along with Canada, we control a plurality of the world's liquid fresh water. And we've got nuclear weapons, so China's probably not dumb enough to invade us for it.

Russia's having an awful year, too. But this is as bad for the US as oil production cuts are for Venezuela or Iran.

In other words, this is the US's way of telling Peter Schiff, China, and OPEC to go to hell. Perhaps Illinois' and the CBOT's way of telling New York to go to hell, too. :-D

 

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