America was caught sleeping when it comes to the current world demand for commodity prices. It just didn’t happen in one night of sleep, however, said Jerry Gulke, president of the Gulke.
Speaking at the 2011 Top Producer Seminar, Gulke pointed out that for nearly two decades, the United States has granted China most favored nation trading status, allowing them to build up their supplies and standard of living. Meanwhile, the U.S. was busy ignoring its own food needs.
“We have no strategic reserves ourselves and China was building a demand base with a population that has as many people in the middle class as we do in the entire population. That isn’t going to go away anytime soon. Now we have food inflation and we see an explosion in prices. We may think on the surface this may be a shot in the dark, but we have to be careful not to underestimate how big this demand is too.”
We have to understand how the costs of raw materials cycles through. We pay maybe 12% of our income for food. In China it’s 48%. If you raise the price of food over there, now they have no money left to do anything else.
Now there is civil unrest in the Middle East that developed late this week that will further spread market volatility. Rumors Friday morning at the Chicago Board of Trade spread that Lloyds of London would no longer insure ships traversing the Suez Canal. This will particularly impact the wheat market, if true, in the coming day.
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