Showing posts from June, 2011

Volatile Commodity Prices

Lots of reports today about a plunge in corn and other food commodity prices following good news from the USDA on plantings and progress of this year's corn crop. In just the last couple weeks corn prices have fallen from nearly $8/bushel to about $6.15.  All of that is due to a rather small amount of information about the progress of this year's crop.  Yes, there were reports of flooding and late plantings, but that kind of thing rarely has much effect on the overall crop production.  The late plantings just set up even more volatility going forward, since the plants will be  susceptible to extreme heat in July and August. This volatility is exactly what economic models predict when inventories are low and cannot buffer weather shocks.  I expect to see even larger swings in late July and August, because it's weather in these months, and particularly the amount of extreme heat in the Midwest, that will determine the size of the corn and soybean crops. But this volati

I Lean Dismal, But I'm Not a Malthusian

Following his big New York Times piece of food supply, demand and climate change, Justin Gillis has followed up with a series nice blog posts on the Times' blog called Green. Here are the links: Reverent Malthus and the Future of Food Can the Yield Gap Be Closed--Sustainably? Answering Questions About the World's Food Supply F.A.O. Sees Stubbornly High Food Prices World Food Supply: What's To Be Done? These are nice articles and I highly recommend all of them. In putting all the pieces together, I think it's important to see how different the current and potentially catastrophic future problems differ from old Malthusian notions.  As I've mentioned before, this is as much a global inequality problem as it is a food supply problem. Economists have long complained about Malthusian types like Paul Erlich because they ignore or downplay the role of prices and incentives.  Economists have a good point:  if food commodity prices get high enough I believ

A Warming Planet Struggles to Feed Itself

The subject heading is the title of the front page article by Justin Gillis in this morning's New York Times.  It's a long multi-page feature.  It begins: CIUDAD OBREGĂ“N, Mexico — The dun wheat field spreading out at Ravi P. Singh’s feet offered a possible clue to human destiny. Baked by a desert sun and deliberately starved of water, the plants were parched and nearly dead.  Dr. Singh, a wheat breeder, grabbed seed heads that should have been plump with the staff of life. His practiced fingers found empty husks. “You’re not going to feed the people with that,” he said. But then, over in Plot 88, his eyes settled on a healthier plant, one that had managed to thrive in spite of the drought, producing plump kernels of wheat. “This is beautiful!” he shouted as wheat beards rustled in the wind. Hope in a stalk of grain: It is a hope the world needs these days, for the great agricultural system that feeds the human race is in trouble. Th

Price to rent ratio and interest rates

No time for thoughtful on-topic posts these days.  Hopefully one sleepless night soon. Here's a quickie on one of my favorite off-topic subjects: Bill McBride at Calculated Risk reports that the national price-to-rent ratio is back to 1999 levels .  That's well before the bubble took hold.  For those who look only at this ratio as a guide to home prices, that's probably a sign that prices have reverted to fundamentals. But consider today's interest rates compared to 1999: Today we're looking at a 30 year mortgage rate that is about two-thirds the level in 1999. I'd say that makes prices today look like a really good deal, especially given anecdotal evidence that rents are on the rise.  When the economy does truly recover, those buying homes today will do very well. Beneath national averages there is tremendous variation in price-to-rent ratios.  In some areas home prices are much more attractive than others.  That means home prices are a screaming d