Bread prices will continue to soar
USDA Drops an Agricultural Bombshell!
The USDA dropped a bombshell last week — reporting that U.S. wheat stockpiles may fall to the lowest level in 59 years! As disturbing as that is, it is 100% bullish for grain prices, especially given soaring worldwide demand for agricultural products.
Global stockpiles have already fallen to 26-year lows. World stocks of grain — that is, the food held in reserve for times of emergency — are now sufficient for just over 50 days. This is already lighting a fire under prices on your grocer's shelves. But if you think you've seen high prices, just wait … you ain't seen nothin' yet.
Our wheat stockpiles are being whittled away because of a combination of rapidly rising demand in emerging markets and terrible harvests that have been compounded by the effects of global warming.
What really shocks me — and should scare you — is that stockpiles are dwindling even as yields are growing enormously! In World War II, American farmers harvested about 17 bushels of wheat per acre …
By 1972, that nearly doubled to 33.9 bushels per acre …
And this year, it should come in at 40.6 bushels per acre!
So even though the number of acres devoted to wheat is down a third (28 million acres) from their peak in 1981, we should be growing plenty of wheat.
Corn yields are rising even more dramatically:
In World War II, the corn yield was 39 bushels per acre …
We should be swimming in corn, but that's not the case! By 1970, it was 72.4
bushels per acre …
This year, the USDA expects 155.8 bushels per harvested acre, and a bumper crop overall. So we're growing just as much acreage now as we did in World War II! Why aren't we drowning in corn?
More and more corn is being siphoned off to make ethanol. About 20% of last year's U.S. corn crop went to make ethanol. Plus, annual corn-based ethanol output in the U.S. is expected to double between 2006 and 2016. It's not just ethanol, either. The USDA says total corn usage will jump 5.3% to 763.7 million tons. With prices for other feed supplies rising, farmers are using more corn for their animals. Plus, a series of bad harvests around the world is making U.S. corn a hot commodity. Let me expand on that last point. A bad wheat harvest in the Ukraine, normally one of Europe's breadbaskets, was followed by poor harvests in Russia, Egypt, and Australia.
The USDA projects wheat supplies for the 2007-2008 crop year will fall to 307 million bushels, down 55 million bushels from its estimate last month, due to the fast pace of export shipments. Globally, the USDA expects wheat production to come in at 600.5 million tons, down from 606.2 million last month. And the USDA just slashed its estimates of Australia's harvest — again! — to 13.5 million tons from 21 million.