Agflation

July 23rd, 2007 at 07:25am David Bush - Iasta

There never seems to be a shortage of new buzz terms, but I found this one interesting since I had previously written about the topic. SCDigest recently had a couple articles on the topic, here and here.

In them was some interesting insight from Merrill Lynch, such as: Agriculture products are notoriously cyclical, with huge amounts of supply often coming in when prices rise to get supply-demand equation back in balance. But as with metals and energy, hugely rising demand from India, China and other fast growth nations, the ethanol factor, and other historical anomalies may mean Agflation will plague buyers and consumers for awhile this time.

This was countered a couple weeks later with this: But as typically happens in agriculture, the good times for farmers may lead to over planting, which will increase supply and ultimately reduce prices again. Last week, the US Agriculture Department issued a report estimating the amount of corn planted this year will grow even more than expected. It said farmers will sow almost 93 million acres of corn in 2007 – an increase of 3% over the estimate for the year made in the first quarter, and up almost 19% over 2006 planting levels.

I tend to think the Agflation will continue with strength until the next planting season but then level and ultimately (and quickly) retract. Maybe not to previous conditions, but closer to more acceptable levels. The impact has been felt within many of our food processing/manufacturing clients and the trickle down effect ripples across virtually every industry.

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Entry Filed under: General, Global Supply Issues/Risk