Nobody is reporting this very heavily, but the drought and subsequent really enormous fires in Russia are having an impact way beyond Russia’s borders. Specifically, a lot of arable land, used to raise wheat, suffered through a serious drought, and then burned, taking with it a big chunk of Russia’s, and indeed the world’s, wheat production. We are being set up for another serious spike in wheat prices, and therefore food prices, worldwide.
NPR’s reporting on this issue is very optimistic. But the problem here is that the optimism is very, very selective. When the chief executive of the International Food & Agricultural Trade Policy Council, says “U.S. producers will be able to step up to the plate and meet global demand that’s not presently being met by Russian wheat producers,” she is correct . . . assuming that nothing else will go wrong this year that might compromise wheat production elsewhere. In 2008, the wheat price spike was driven by the convergence of a rise in biofuels production, a drought in Australia, and some fairly shadowy financial instruments that may have generated a commodity bubble around wheat. In other words, a lot of stuff went wrong at once. Given the uncertainty we see in the global economy, and the rising climate variability in wheat production centers like Southern Africa, arguing that nothing else will go wrong strikes me as a really weak bet.
Yes, US farmers will profit mightily from an increased demand for their wheat – but if demand outstrips supply, which seems increasingly likely as we move into the fall, everyone from the global poor to the average US consumer is going to feel the impact of rising food prices again. Right now, nobody is doing anything to address this likelihood, and a reactive approach to food price spikes never solves the problem in time to matter for those most affected . . . anyone want to get proactive about this, please?
I’m not sure (since you didn’t specify, and I don’t follow wheat news), but I suspect those shadowy financial instruments you mentioned might have been somebody getting proactive.
The normal way price spikes are handled is through a futures market. The market bets on the future price of wheat. If it looks like the future price is going to spike, then the price of the futures rises now, and farmers can sell those futures to fund increases in production now.
Thus, you still pay the price for whatever caused the spike (producing more food costs money, obviously), but it’s smoothed out over a longer period of time, and supply rises in advance to meet the anticipated demand.
Of course, people will look at it, and say that just at the moment the global poor really need cheap food, those profiteering so-and-so’s in the Capitalist market place are raising prices and making a profit through speculation and arcane financial manoeuvring. Somebody ought to do something to stop that.
Whether they do or not, and whether that was what you meant or not, the answer to your question is still “wheat futures”. Proactivity can be profitable.
I have no problem with futures markets, per se – I agree, they can be very useful financial tools. However, they can also be manipulated to do very destructive things for the advantage of a very few. But I do suggest you check this post and the article I am discussing in it. Yes, the article does have a bit of the tone you mention above, but if you can look past it/stomach it, there are some important points to be made about the risks associated with financial instruments in the global food markets. There is no rule that profits and access are mutually exclusive – but often people don’t seem to look for a middle ground that make both possible, when there are ways to get larger profits faster by not compromising. I suppose we could go off onto a side discussion about human rights and access to key resources here . . . and then I would have to go into water privatization, which is its own tricky thing . . . but it is late, and I can only handle so many digressions in a single comment!