Last week The Daily Reckoning reported on the ‘Tortilla Crisis’ in Mexico. That is, the increasing price of corn has caused the price of tortillas, a staple of the Mexican diet, to rise as well. This has strained the social harmony in some impoverished parts of that land, to the point where food riots were threatening. After the police were called out, and the politicians offered the usual bromides, several of Mexico’s major food distributors, from GRUMA to Wal-Mart, agreed to keep a lid on prices charged for corn and tortillas.
And what do we see on the other side of the world? From Iran come reports of great disaffection amongst the less affluent classes with the governance of a certain Mahmoud Ahmadinejad, he of the stem-winding anti-U.S. speeches that incidentally promise the destruction of Israel. Apparently Mr. Ahmadinejad can spend his nation’s oil money running a nuclear weapons program, but he cannot keep the price of food from rising, much to the consternation of the people who inhabit the land of ancient Persia. The Mullahs, we are told, are not pleased.
And in the past week, no less an authority than the New York Times has run several articles on the difficulties that U.S. farmers and cattle ranchers are having in feeding livestock, due to the increasing price of (what else?) grain. Even the price of humble hay is rising due to the competition for something to feed the cattle, this market issue coupled also with a series of severe droughts that have afflicted the U.S. Midwest in the past years, and prairie fires, and the bad weather of late.
So what we are seeing is the confluence of the oil and grain markets. Just as the rising price of oil has priced many of the world’s poorest souls out of the oil age, so is the increasing use of grain to manufacture ethanol also pricing the poorest of the world’s poor out of the modern age of relatively abundant and affordable food. This is, I believe, just the bow wave of a coming phenomenon.
If the U.S. maintains its policy impetus and industrial momentum to manufacture large amounts of ethanol from grain, certainly the 20% replacement of U.S. gasoline supply within 10 years forecast by President Bush in his State of the Union speech, it may not be just poor Mexicans and distant Iranian villagers who are priced out of the grocery stores.