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Glorious Food, Wicked Prices: Imminent Hyperinflation

NEW YORK ( Bullion Bulls Canada) -- Attempting to decipher the global picture regarding food prices, food inventories and food production is not akin to navigating a labyrinth. A deluge of misleading propaganda and short-term 'noise' from the mainstream media means anyone attempting to decipher these parameters is likely to encounter a plethora of "dead ends" and "wrong turns."

Those following agricultural markets and agricultural prices have seen two general trends emerging over the past decade: Rapidly rising (nominal) prices and steadily falling inventories. This flies directly in the face of the most basic of all supply/demand fundamentals.

Yes, falling inventories are supposed to lead to rising prices. However, those rising prices are then supposed to naturally lead to both falling demand (because of higher prices) and rising supply (because of higher prices) -- with the rebuilding of inventories an inevitable result.

Yet despite the largest price-spike in the price of agricultural commodities in 40 years, inventories remain depressed, and critical stock-to-use ratios remain close to multi-decade lows. So why has the global economy ceased to respond to basic supply/demand stimuli? Because our subsidy-saturated global agriculture model is so absurdly broken.


Source: United Nations Food and Agriculture Organization

While fiscally irresponsible Western governments continue to whine (and do little else) about their exploding debts and deficits, utterly massive (and still-growing) farm subsidies remain untouched. Western agricultural subsidies (direct and indirect) now amount to somewhere in excess of $100 billion/year; however these subsidies are so endemic and heavily disguised that coming up with an exact figure would be a Herculean task.

For example, much of the U.S.'s corn subsidies are in fact listed/described as "ethanol subsidies" . The preferential prices (and access) given to U.S. farmers for (precious) water supplies does not even seem to be counted as a "subsidy," despite the tremendous quantities of subsidized water being directed toward (what is now) the U.S.'s "banana economy."

U.S. soya bean farmers received nearly $30 billion in "direct subsidies" alone from 1995 to 2011, with subsidized water not even mentioned.

There are two obvious and inevitable effects of long-term agriculture subsidies, and long-term subsidies in general: Artificially low prices and depressed production.

Let me repeat: The effect of these permanent subsidies on agricultural commodities means that crop prices (and food prices) would have been spiraling upward even more rapidly otherwise.

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