Contrary to the pitiful barking of Big Agbiz, the United States — and any nation with enough money — will not run out of food this year. This can be said unreservedly for two reasons.
First, war or no war, there is no global shortage of wheat – the crops that today’s chicken littles are cackling around. In the last week of March, numerous sources pointed out that the estimated shortfall in Russian wheat export sales due to the war in Ukraine will be about 7 million tons this marketing year.
While that sounds like a lot, 7 mmt is actually 0.9 percent of Russia’s amazing wheat crop of 778 mmt in 2021.
So, no, the loss of less than 1 percent of any nation’s agricultural production in any commodity will not result in global famine.
The second reason the world will not run out of wheat is that when well-functioning markets operate in an open and transparent manner, supply and demand are price rationed. Yes, cold can get expensive; but it also ensures that the global closet is never really empty.
And that is exactly what happened in the wheat futures market from mid-February to early March when Russia invaded Ukraine. On February 18, a week before the invasion, May wheat futures prices in Chicago were $8.04 a bushel. After three weeks of volatile, war-fuelled trading, May futures had surged above $12.
On March 8, however, the May contract rose to $13.63 a bushel just as futures trading began that day. Shortly thereafter, something – or someone – hit the market and May futures fell off the table, down $2 a bushel. By the end of the bruising session, prices had rebounded to $12.86 a bushel, or almost exactly where they had ended the previous day.
What happened?
Nobody really knows. And worse, it’s likely that no one will ever know; because the primary regulator of futures markets, the Commodity Futures Trading Commission – like many government agencies over the past decade – has delegated most of its oversight functions to the markets themselves, notes Dr. Steve Suppan of the Institute of Agriculture and Trade Policy in Minneapolis.
In a March 16 forward-looking post on the IATP website, titled “Wheat futures prices and the war on regulation,” Suppan describes the long anti-regulatory game that most futures exchanges played with federal regulators after the post-2008 laws had given regulators more powers to monitor the markets.
That fight culminated in late 2020 in a 3-to-2 vote by the five-member board of directors that “ceded almost all of the CFTC’s powers to the exchanges…”. players on the field the referees.’
However, “in this area” is losing “public interest”.
It’s hard for the public to see; because futures markets appear to be mysterious exchanges where cab drivers become millionaires by buying soybean futures. Not like that…never.
US futures exchanges are a $610 trillion-a-year marketplace where speculators – traders looking to make a profit – and hedgers, typically buyers and sellers of products or derivatives of products traded on the exchange, meet the price based on key factors such as supply, demand, weather and war.
And they’re vital in our daily lives: When markets don’t work fairly, everyone pays – from the trader who’s been tipped off on a shady deal to the single mother of five struggling to pay the weekly grocery bill .
Farmers and ranchers know this. Indeed, today’s volatile wheat market means that some rural grain buyers will only buy farmers’ grain when the Chicago futures market is open, allowing the buyer to immediately transfer their ownership risk to someone else.
This also means that these buyers do not offer any farmers a market after 1.15pm every weekday and no market at all on weekends. Almost any farmer or rancher will tell you that this is a highly risky and potentially costly failure for both you and him.
So, no, we won’t run out of food. The real danger is running out of markets to trust.
The Farm and Food File is published weekly in the United States and Canada. Past columns, events and contact information will be posted at www.farmandfoodfile.com.
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