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Is the world short of all commodities?

Increasingly if you read between the lines in the press, you will find continued reference to shortage of all commodities.

I have previously referred to the fact that there is only 58 days of stored food in the world. Some may remember when all the chillers in New Zealand were full of butter and product. New Zealand couldn't sell enough annually to make way for the new season's production. I think we had up to two year's product stored in those days.

Fonterra has sold virtually everything and are now offering more for shoulder milk in the autumn. This is apparently a "one-off" deal and the reality is that prices and demand have risen across all dairy products and Fonterra is offering incentive for increased production.

There is now competition for grain to feed people directly, as distinct from being converted to bio-fuel or being fed to livestock to produce protein. The world is short of grain and many large nations who were net exporters are now importers: China falls into this category for rice. Grain is also being fed to cattle to produce beef protein for the rich markets; this could be fed directly for human nutrition. The question arises though; will the increase in the worlds demand for food and subsequent increase in price reflect an increase in return at the farm gate?

Food isn't the only commodity in demand. Nuclear power needs uranium as a fuel source. Those who purchased uranium shares 18 months ago have quadrupled their money. If China cannot get enough uranium, the lights will go out there too.

Apparently Australia has insufficient infrastructure (e.g. rail and port facilities) to carry the product to the ports at the rate that the world wants them.

Bauxite, coal, uranium, copper etc are all commodities the world wants. The commodity boom along with higher inflation is expected to continue for the next five to six years.

And what about oil stocks? Dick Cheney, the USA's ex Vice President is on record saying we are running low on oil. Consequently many believe the invasion of Iraq was more about oil than anything else. Iraq's oil reserves are the third largest in the world and opening them up will help avert shortages in the short run.

So how is all this going to affect us as farmers? Prices for all commodities will continue with demand starting to outstrip supply across all sectors. Interest rates and inflation are likely to remain steady and strong. Demand for all food will be strong, with increased prices.

In summary Failing a financial shock, the demand across all sectors for commodities, particularly food and oil will continue. The world is a hungry and demanding place, with limited resources to meet steadily increasing demands. This is likely to reflect in continued demand and price for New Zealand primary products and farm land. Land in New Zealand is a fixed resource and all families should endeavour to retain it within their family group, realizing that it can only go one way.


 

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