Corn to Ethanol, Oil to Food, Wheat to Corn, Currency to Inflation, Inflation to Everything - 3/16/08

Corn to Ethanol, Oil to Food, Wheat to Corn, currency to inflation, inflation to everything!   There was once an old saying used when discussing an issue, “What does that have to do with the price of tea in China”.  Now with world limited resources and extreme demand from the explosive growth of China and India, not to mention we are in a commodity super cycle and yes the price of tea in China could be affected by many things.  For more information on what a commodity super cycle is go to this link http://www.beyondfossilfuel.com/resources/super_cycle_012008.html

Unless the tea plants were cultivated by ox, a tractor was used burning fuel.  The tea was most likely transported by truck again burning fuel.  It may have entered a tea processing facility where it is prepared and packaged using energy.  After packaging the tea it is again transported by burning fuel.  It was prepared into a beverage again using energy of some kind.  All this energy was used before the tea made it to the tea cup.  This applies to all food.  As the fuel cost associated with the processing of food and delivering it to your table goes up, so will the food prices.

Let’s add the factor of supply and demand to the limited supply of tea.  The U.S. has been the greatest consumer of the world, but countries like China and India are moving up the ranks quickly.  Their populations have moved from a majority of bike riding people with a high rate of poverty to car driving people living in air conditioned homes.  They now have money and want to live the western lifestyle.  They can afford things that were once luxury items like coffee, sugar, tea, and automobiles. This will put tremendous pressure on the supplies of ALL commodities including oil, cotton, tin, copper, gold and the list goes on.  We may see $6.00 a gallon on gas by 2009.  For more information on $6.00 a gallon gas go to this link 
http://www.beyondfossilfuel.com/resources/6_gas_010308.html

Add some inflation to the price of tea.  The government claims we have and annul 3% inflation; it’s more like 8%.  We have been experiencing monetary inflation for many years, which affects the price of everything from oil to everything we consume. Ben Bernanke, the Fed chairman, has been running the money printing machines wide open.  Other countries like China have also been increasing their money supply each year, creating their only brand of inflation.  As our currency becomes worth less it takes more currency to buy the things we consume.

Let’s add global warming to the price of tea.  We are on the verge of a worldwide water crisis.  The more pollution we create from the burning of fossil fuel the less rain we receive.  It’s that simple.  As more people in China and India drive cars and buy energy using air conditioners, more pollution will be created, adding to the problem.  If there is not enough water for the tea plants they will not produce tea leaves, adding to the reduction of the tea supply, pushing the price of tea higher and higher.

All this demand on the world’s limited supply of resources could soon get out of control.  Jim Rogers, writer of the book “Hot Commodities” recently told delegates to the CLSA investment forum that prices of all agricultural products would “explode” in the coming years.  He went on to say that historic drains on wheat, corn and other soft commodity inventories could lead to food shortages.  Mr. Rogers warned that it “made sense” if global competition for resources ended in armed conflict.  For more information on resource wars go to this link http://www.beyondfossilfuel.com/resources/resource_wars_012308.html

In the U.S. corn is the most highly used food to produce ethanol.  Close to 20% of all corn grown in the U.S. is used to produce ethanol.  When a farmer sees it is more profitable to gown corn than wheat, tea, or coffee, they switch to growing corn.  This then reduces the supply of other crops they were producing.  Demand for these other crops are still there, but now the supply is reduced increasing the price.  So is corn causing the price of tea to go up in China, may be. 

You may have heard the term “Peak Oil” we may be on the verge of “Peak Everything”.  Our natural resources are in limited supply, food, water, oil; almost everything is being pressured by demand.  The price of energy, monetary inflation and “supply and demand” all has an effect on the price of tea in China, as well as all other commodities.  Jim Rogers said recently, over the next two decades we will see the prices of everything from cotton and sugar to lean and nickel “going through the roof”.

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