A lot of people are getting unreasonable freaked out by the fact that Sam’s Club and others are limiting the amount of rice you can buy. The reasoning tends to run like this, “Rationing in the breadbasket of the world? The end of the world must be neigh.”
But the fact of the matter is that there is no shortage of rice in the US. The reason that Sam’s Club and other discount stores are limiting rice sales has more to do with the rampant speculation that is going on than it has to do with the state of the rice supply. For a little background on the scale of speculation going on in the grain markets read this post from Naked Capitalism called “Commodity Volatility Creates Problems for Farmers (and May Explain an Inventory Mystery). This quote from the post pretty much says it all…..
Aside from the difficulties that the farmers are facing, the article does contain signs that speculation is overwhelming fundamental activity. One big warning sign mentioned in passing: trading has outgrown the delivery system. If I read this correctly, it means that the volume of futures contracts is so large relative to the actual deliverable commodity that arbitrage (via taking physical delivery) won’t force convergence of futures prices to cash prices at contract maturity.
People with money are so disparate to find safe havens for their money that they are pouring cash into any area that might possible do well even in an economic downturn. Grain is one of those areas because their are real shortages in the world grain market. As a result poor people in third world counties are going to starve.
But the fact that poor people are going to stave does not mean that America faces some kind of grave crisis that threatens are ability to eat. It is a fact that even with the recent run up in prices, rice and other grains are extremely cheap relative to even the poorest of American’s income. If we ate like the rest of the world ate (i.e little or no meat and nothing in the way of processed food), food costs would be fraction of the poorest third of American’s population even if prices doubled from the current high prices. Contrast that with many third world countries where food cost tend to equal 50 to 60 percent of average income even before the recent spike in prices. They can’t cut back on the meat because they never ate much of it to begin with.
