This is what is happening in the wheat futures market:
Prices are rising because of consumer panic buying and threats to markets, including the closing of borders and labour shortages.
I have argued for rationing and price controls. The case will become overwhelming soon.
Hat tip: Peter Dawe
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Buy me a coffee!
apparently bin men are now hauling away spoiled food that people panic bought a week or two ago.
I am sure that is true…
Rationing and price controls should be an option to be considered as it is quite obvious that the current situation cannot continue with perishable fresh food not available and tinned food having disappeared from shelves. That was my experience in going into my local supermarket, 15 minutes after opening, on two occasions this week, not to bulk buy, but to replace what has been consumed. I suspect that those on low incomes are not to blame for throwing away food, as they cannot afford to, but those higher up the income scale who just throw away what they do not need, or because they have over bought, has deteriorated to a state that they consider makes it inedible. They should consider others, but that will not happen without an education programme, rationing, or given the capacity of supermarkets to track our spending, the introduction of sanctions against those who transgress reasonable norms.
The coronavirus induced containment strategy replicates the seige conditions of war in the sense that much of production has been switched away from satisfying consumer need.
With food in particular, however, you are right to argue that containment strategies by other countries may result in the need for rationing. Certainly German U-boat submarines operating in the Atlantic can be regarded as being a sort of similar version of containment strategy.
What I don’t know is how highly reliant the UK is on Western Europe for much of its food and whether the UK can easily switch to reliance on other countries with transportation by ship for its food as the British became more reliant in the Second World War.
Then there’s the Brexit factor looming with both the EU and UK disrupting just-in-time food systems for border checking purposes. It’s a mess and I have no great confidence this current government has the calibre of ministers able to satisfactorily address food supply issues being more interested in being ideologues than pragmatists.
While not everyone’s favourite cup of coffee, George Galloway raises the issue – https://www.youtube.com/watch?v=WRNRkhXti3s
You are joking, right?
The chart you show us is a few weeks of data, where the prices go up a bit. What you don’t show us is that wheat prices are still quite low – about half the price they were in 2011 and 2013. I’m guessing you don’t know anything about soft commodity markets but prices are very volatile.
In this case, the prices are going up not because of scarcity of the grain, but because of worries about delivery. Problems physically getting the grain to where it needs to be, because of governments restricting travel. The futures curve is in backwardation precisely because of this.
Price controls are the best way to destroy a market and make the problem worse. If something can’t be done profitably, people won’t do it. And there is no need or reason for rationing.
I think it is pretty disgusting that you are peddling scare stories, from a position of no knowledge and no experience. All you’ve done is look at a short term chart. It’s irresponsible.
No I am not joking
And yes, I do know how markets work
And prices are rising
And I have drawn a reasonable conclusion: prices are rising
There is no evidence that you know anything and the abuse is all yours
If you aren’t joking, then it doesn’t say much for your knowledge about economics or about the markets.
If you knew how the futures markets works, you would have also known that the later futures are currently priced much lower than the first future, which is the chart you have put up.
Why is that? Because simply put, there is more than enough wheat out there. But futures are pricing the short term higher because of delivery, which might be problematic. So the market is pricing in a premium based on the scarcity of delivery, not on the underlying product. Remove the delivery problems, which the longer dated futures imply, then prices haven’t risen at all.
You actually see this with most agri/soft commodities at the moment.
Your “reasonable conclusion” is that prices are rising, from looking at a chart of the last few weeks. You seem to have not bothered to look at where they have been at other times though. Most of last year prices were much higher. You also conveniently fail to mention that they were also at these levels at the start of this year, and the rise on your chart is coming off the absolute price lows for this year. Or that we are still under the average price seen over the last decade.
Your “reasonable response” to this conclusion? That we should ration food and control the prices of it. Nothing like sowing a bit of panic whilst making outrageous claims. Despite having done absolutely no investigation or research into what you are claiming.
As has been proved time and time again, price controls are absolutely the best way to reduce supply, whilst doing nothing to manage demand. If it is not profitable to produce and sell something, then less people will do it. Price controls more often than not raise prices as supply decreases in the face of constant demand. This is very basic economics, observable repeatedly in the real world. You’d hope a Professor of economics would know this.
More than that, the market price mechanism works much better anyway. As prices go higher, it naturally reduces demand for the product without any dramatic and authoritarian intervention.
You are scaremongering, have done no real analysis other than looking at a short term price chart, and then are jumping to make absurd recommendation based on what passes for your analysis.
For the people who are worried about food production, might I say this.
Coronavirus has had very little effect on the amount of food being produced. What has had an effect is governments around the world making delivery of that food across borders and to retailers much more difficult and costly. Even now those delivery problems are being managed and solved, and no-one in the industry is expecting any long term problems regarding supply, and prices are likely to remain unaffected (and in some cases might well fall, as many input prices such as oil have fallen dramatically. Food price inflation in the UK is likely to remain just over 1%, where it has been for quite a while.
There is no need to panic, and certainly no need to enact dangerous and damaging recommendations made off the cuff, as these are.
Might you share your CV David
Right now your comments have zero credibility, except on the trolling scale
David.
“Price controls are the best way to destroy a market”
Hmmm. I think a better way is Coronavirus.
The “market” has gone already.
🙂
The National Sheep Association is reporting wholesale prices for lamb is dropping because of distortion of the lamb market. Half of all UK food consumption we are being told takes place eating out at restaurants, etc. and because they’ve been forced to close demand for such food products as lamb is in decline. Is this just a temporary blip in the market because of food consumption patterns changing? It’s a bit hard to get your head round this one. Will we now eat less food because we’re doing more eating at home not less because of fear of going out unless you absolutely have to?
Hard to know – but I know i like lamb occasionally and almost never cook it at home
And I a quite keen cook
Another factor to add to this scenario, Richard, is the incredibly wet autumn and winter we had in most parts of the UK and the impact this has had a crop planting – and cereal crops in particular, I understand.
I’m not sure what the sitatuion is in East Anglia, but here in the East Midlands there was a feature on this on the local BBC News about a month before coronavirus kicked off. It featured I farmer who is a large cereal farmer on land not more than three miles from where I live – which I why the item particularly caught my attention.
As far as I recall the situation is that it was impossible to plant winter wheat (i.e. wheat that’s planted in the autumn for harvesting this summer). And as I understand it winter wheat typically provides a much higher yield than spring planted wheat, which is why cereal farmers prefer it.
I’m not sure what the situation has been with planting spring wheat (for harvesting in the autumn). But I do know from my own observations that a good amount of agricultural land in this area of the country was still waterlogged only two weeks ago, and certainly the fields of the farmer who featured in the BBC East Midlands report were still fallow at that time.
Maybe the situation in Lincolnshire and East Anglia is better. And in countries from which we import grain. I certainly hope so, otherwise we are certainly in for supply problems come the autumn. But leaving that aside, as you rightly point out, even then there will be a significant hike in price.
Ivan
I am no expert – but I do see the fields all around me and did not notice a shortage of wheat planting
In fact some was done early – as local swan watchers noted as it had an adverse effect on them
So I can’t tell…
Richard
I own a mainly arable farm in Norfolk
Yes we failed to drill a lot of winter wheat, and we have been struggling to drill spring crops, due to water-logged ground.
This week we are on the land at last, but the cold nights are not helping germination.
Our cows are still in the barn again because of water-logged meadows.
With late sowing, we are taking a risk and putting in soya. A first for us, and probably the only soya in East Anglia.
We have taken out several acres to plant fruit and veg for ourselves, just in case!
Across Europe and east asia, the winter has been on the whole average.
Australia is a disaster, with on going drought, where they haven’t had disastrous rains! Aus is likely to be a net IMPORTER of grain, rather than a large exporter
S. America is very variable, North America is average. Central America is poor
S and E Africa is bad
Derbyshire is very variable – the closer you are to the Derwent or even the smaller tributaries, the more waterlogged you are. There is still muck spreading going on even in the higher elevations (you can smell it) but it has been extremely cold with some heavy frosts since the heavy rain stopped.
My farmer mate in Sussex making similar comments last week re his co-operative of farmers reporting heavily waterlogged ground
The future price of wheat depends upon the harvests in US, Canada, Russia, Ukraine, Australia and other bread basket countries similarly with rice, soya etc. the UN is warning about this but forcasts are good at the moment. The problem will be hording by the big multi-nationalsinducing prices rises. You are right rationing is essential and strict international rules imposed on trading for food security, not excess profit.
Anecdotal: I live near Nottingham and by train I went to Edinburgh in November (I think it was) and again a few weeks ago. I took short films and tweeted about this (29th Feb) one of which you can see here: https://twitter.com/marcgibson/status/1233714893251063809
So it does look like crop yields will be down.
But then I’m not a farmer (and Richard, such a shame about the abuse sent in your direction).
I’ve lived with it for 15 plus years now
People don’t like their own self interests being disturbed
I agree with Marc’s comment on the abuse.
I am afraid that many people are going to find over the coming weeks and months that many of their shibboleths and sacred cows are going to be overturned.
And how ironic that Johnson’s government is the agent that, by it’s actions, completely disproves the “verities” of the Thatcher revolution, and clears the intellectual and policy ground for a seriously reforming future Labour government – I hope.
There has never been a famine, where there wasn’t enough food.
They are always about distribution. Prof Sen got a Nobel prize for demonstrating this.
Indications are, there are multiple problems in the supply chain at local, national and international levels.
You only need one to be unresolved to have starvation.
ARU’s Exoshock model, demonstrates the problem, Using the experience of the supply shocks to rice and wheat last decade.
It can currently demonstrate, very worrying scenarios.
Scenario planners use the metric, “9 meals from anarchy”
If the (UK) food distribution system, due to ANY blockage, fails to deliver for 2 weeks, to a significant demographic, they take to the streets
A cautious government, would seek to minimise the chances of a 2 week hiatus, rationing is one (powerful) tool.
I believe “food” civil disobedience will be seen in other countries very soon.
It’s a bit academic if it’s a logistics rather than a not enough food problem.
If the food isn’t reaching people, people go hungry.
I was wryly amused by the sentence in David’s contribution: “As prices go higher,it naturally reduces demand for a product”. I doubt that he has ever gone hungry and ‘naturally’ reduced his demand for food accordingly in the face of higher prices.
He has not heard of Giffin goods
Re David’s naive point – I was doing some work with the BofE some years ago and travelling to the USA with one of their senior economists. We were idly discussing the crazy housing boom of the time and he nonchalantly dismissed it in the same terms as David. ‘It’s no problem – if the prices keep going up, people will sell and buy again when the prices come down again’. He did not have an answer for where they might live in the meantime.
It told me everything about the narrow, market obsessed education of a many of a generation of economists – that they have PhDs tells you only that they know more and more about less and less. And nothing at all about normal people’s real lives
I hasten to add that the current Chief Economist Andy Haldane is very different. Some here may have read his paper from a few years back confirming that money is indeed created ‘out of thin air’ by the banks.
Not sure how many actual bankers have read it…