Food for thought – a sobering thought
It was a little over a year ago when I wrote "First oil, next food?" wondering how long it would be before food suffered the pricing pressures we'd seen in oil.
Sadly I didn't have to wait very long as an article on CNN this evening describes rioting over food prices in several countries around the world – "Riots, instability spread as food prices skyrocket".
The last 6 months have seen incredible increases in the prices of commodities as investors poured money into futures. I suspect this speculation is more the cause for rising food prices than the demand for corn to make Ethanol but surely that's also an underlying cause.
As I re-read my original post, this paragraph stuck in my mind…
"But as any investor will tell you, if there isn't a return to be made in one sector, money will flow into a sector that offers the promise (hope?) of a better return."
We've seen the impact of huge capital inflows into specific sectors – the sub-debt mortgage fiasco, the (continued) growth of LBO funds and now the commodities market. The promise of a superior return attracts more and more capital which eventually kills the returns that attracted the investment in the first place.
I wonder where all the capital will go next? I shudder to think!