I’ll never be one of those folks who talk about prices being too high. It’s music to my ears when I hear about feeder cattle bringing $1,000/head or cull bulls returning nearly $1,900. And I believe the new price levels are justified. Still, there are talks about riots in the street, and even the turmoil in Egypt and Tunisia has been partly attributed to rising food prices.
There were concerns voiced this week about devastating drought in China, the largest wheat producer in the world, and the potential impact such a drought could have on global prices. The concern is that the run-up in cattle prices has largely been due to decreased supplies and increased global demand, not increased domestic demand. As a result, analysts are predicting losses in infrastructure and market share that may be difficult to replace.
Corn is the one notable exception, with demand being forever changed by way of ethanol subsidies and the resulting domino effect. Still, this price increase has been driven by decreased supplies, rising input costs and sufficient increases in export demand.
While the current prices are a necessary and welcome development, the causes are disturbing – a falling U.S. dollar, more ground moving out of ag into energy production and other areas, and rising input prices that have resulted in decreasing supplies in the face of increasing prices.
So, while higher prices are a great thing, there are legitimate concerns. These include: at what level will supplies increase, will we lose infrastructure, will we see continued erosion of market share to the point where we lose the battle for the center of the plate, and will rising food prices cause changes in global policies?
I know of no one who is predicting riots in the street as the result of higher food prices, but it would be naïve to believe that there won’t be repercussions, not only in terms of how food is purchased and consumed, but politically as well. As a country we have gotten pretty used to cheap food.