2011-02-11

Egypt's future is China's weather

Two good articles by Spengler over at AsiaTimes. The first shows the increasing volatility in wheat prices. In a nutshell, wealthier Asians now have inelastic food demand, similar to Westerners. Prices rise, but they do not need to cut back on their consumption. That is bad news for poor Arabs, where food is still 50% of the CPI. The risk isn't in higher prices per se, but the massive price spikes we saw in 2008 and 2010, which lead to people going hungry. He fleshes this argument out in Chinese weather on Tahrir Square, where he discusses China's drought and the possibility that China will need to import millions of tons wheat this year. If that happens, the price could rise dramatically and make 2010 pale in comparison.

I think the drought in China is being under covered by the media. The Chinese press avoids negative stories, but there's been a fair amount of coverage of the drought in the media. I don't get the sense that the Western media is covering it as closely though. While traveling during the Spring Festival holiday, I crossed a bridge above a huge river. The river bed was completely dry. My hunch is that China's grain demand will be surprisingly high this year.

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