According to the Financial Times,
“When William Lapp, of US-based consultancy Advanced Economic Solutions, took the podium at the annual US Department of Agriculture conference, the sentiment was already bullish for agricultural commodities boosted by demand from the biofuels industry and emerging countries.
He added a twist – that rising agricultural raw material prices would translate this year into sharply higher food inflation.
Read further down in the Financial Times piece and you will note that the IMF, on the other hand, appears not to believe that the developing world will decouple from the US. If there is no decoupling, it says, then a US recession will cause global growth to slow and push down food prices.
The question boils down to whether you believe what an interventionist economist at the IMF says or what the market (the commodity market) says….
For one answer, read Bill Engdahl’s piece on the financial tsunami coming our way and how complex, Nobel prize-winning economic theories and models are the problem behind, not the solution to, the present crisis.
Because they are houses built on the sand of specious notions. Notions of a perfectly rational “economic man” and of a perfectly Gaussian “efficient market.”
“As hundreds of thousands of Americans over the coming months find their monthly mortgage payments dramatically reset according to their Adjustable Rate Mortgage terms, another $690 billion in home mortgage debt will become prime candidates for default. That in turn will lead to a snowball effect in terms of job losses, credit card defaults and another wave of securitization crisis in the huge market for securitized credit card debt. The remarkable thing about this crisis is that so much of the sinews of the entire American financial system were tied in to it. There has never been a crisis of this magnitude in American history.
At the end of February the Financial Times of London revealed that US banks had “quietly” borrowed $50 billion in funds from a special new Fed credit facility to ease their cash crisis. Losses at all the major banks from Citigroup to J.P.Morgan Chase to most other major US bank groups continued to mount as the economy sank deeper into a recession that clearly would turn in coming months into a genuine depression. No Presidential candidate had dared utter a serious word about their proposals to deal with what was becoming the greatest financial and economic meltdown in American history.”
More by Bill Engdahl at Oilgeopolitics.net.
I might have been a bit naive in the piece above. I was rightly curious about the IMF economist’s motives in telling us that food prices would go down in the future, when the grocery shelves say the opposite.
But I was a bit trusting about the first quote.
So here’s a bit of belated digging.
Who is Bill Lapp and this consultancy Advanced Economic Solutions?
Lapp is a former VP of research at Con-Agra. A little googling reveals that just in 2007, ConAgra settled with the SEC over various financial improprieties.
He also seems to show up at Harvard run bashes for agribusinesses, says Hal Hamilton of the Sustainability Institute. And seems to like cheering on Monsanto’s attempts to shove biotech down the mouths of unwilling Europeans as Adam Smith in action….a curiously fundamentalist interpretation of The Wealth of Nations that, as Hamilton points out, would probably have left old Adam speechless.
The website of the Kansas City Board of Agriculture had this:
“Lapp, who has been appointed to his first two-year term, has more than 25 years of experience in analyzing and forecasting economic conditions and commodity markets. He recently formed Advanced Economic Solutions, which provides economic and commodity analysis to agri-business and food companies. Prior to that, he was the vice president of economic research for ConAgra Foods. Lapp currently serves on numerous boards, including the Kansas City Federal Reserve Board’s Center for the Study of Rural America, the Farm Foundation, and the Food and Agriculture Committee of the Omaha Chamber of Commerce. Lapp is a member of USDA National Agricultural Statistics Service Advisory Board and participates on the Harvard Business Industrial Economists’ Round-Table.”
And here we find Bill Lapp saying about what he said up above....only he’s saying it in s 2004.
Since 2002, the value of the dollar has dropped 25% while commodity costs have risen 46%. In fact, according to the CRB Index, commodity costs earlier this year were at their highest level since 1984.
The result was that in the year between April 2003 and April 2004, soymeal prices rose 92%, cheese 90%, soy oil 54% and chicken breast meat 47%, just a few of the more dramatic price jumps.
The good news? April seems to have been the peak for this escalation. Since then, many (though not all) commodities— especially grains and dairy products,but not proteins—have seen price declines, some quite sharp. This is due, Lapp indicated, to a stabilization of the dollar and a slowdown in the Chinese economy. Over this period, cheese prices have fallen 33%, corn 24% and soymeal 23%. However, protein prices remained high through mid-June thanks to continued high demand driven by the low-carb diet fad, along with constrained domestic supplies and a ban on Canadian beef imports.
What about the future? If that could be predicted with certainty, there would be no futures market in commodities. However, the best guess, according to Lapp, is that moderation in price will continue through the end of the year, perhaps extending even to protein after Labor Day and the end of the peak summer season. A continued economic lull in China would also reduce demand from that market, lessening pressure on global supplies.”
Here is Lapp in December on the rate of inflation in US food prices over the next five years:
“During the next five years, food inflation is forecast to increase by an average of 7.5 percent, well above the 2.3 percent average of the past 10 years.
“The US experienced a similar period of rising commodity prices and food inflation in the 1970s. Commodity prices doubled … this ultimately resulted in food inflation from 1972 to 1981 averaging 8.2 percent,” the study said.
Traditionally, the food industry — processors, grocery stores, restaurants, and others — absorbed the cost of higher commodity prices within its operating margins as the rise was temporary given the competitiveness of retailers.
But times are changing, said Lapp, who is a consultant to the food and agricultural industries….”
And here’s Lapp in this piece telling the consumer that he can – and should – pay higher prices.
“Lapp, the former leading economist for ConAgra, told Brownfield bread prices rose over 10% in 2007 and are likely to do at least that again this year. He added other food prices will also head higher as food manufacturers increasingly pass on the costs of high commodities to consumers. The good news, Lapp said, is that most U.S. consumers can afford to pay up, even if they won’t have much choice in the matter.
“I think consumers are more prepared than we realize to accept higher prices on food and I think that’s part of our future,” Lapp predicted. “It’s largely been set in stone for us already.”