Several charts from Deutsche Bank’s mammoth “Long-Term Asset Return Study,” from strategists Jim Reid, Nick Burns and Seb Baker, show how the improvements in farming techniques have driven down food prices.
Efficiency has outstripped population growth, putting to bed old 18th century economic theories that the human birthrate would explode and we would all end up scrabbling for a few grains of wheat.
The analysts note (emphasis ours):
Intuitively this makes sense for agricultural products as they are clearly renewable and although there are land and yield constraints we would speculate that productivity gains in harvesting these renewable products have outstripped population growth.
Here’s wheat prices look like in the the long term according to the Deutsche Bank charts:
Sugar has had an even sharper drop:
While this is great for dinner, it makes predicting long term trends in soft commodities much tougher.
The constant declines leave food commodities without a steady historical average price to for traders return to in normal trading conditions, so there’s no reliable benchmark for future prices.
As the Deutsche Bank analysts say: “This makes assessing valuations on a long-term basis pretty tough as long-term mean reversion doesn’t seem to exist.”
It also means we may see more scenes like those on Monday in Brussels, where Belgian, French and German farmers blockaded streets to protest about plummeting prices for their diary and meat produce.
The farmers threw eggs at police, drove tractors down busy streets and set alight bales of hay before they were dispersed. The European Commission pledged aid worth €500 million ($US558 million, £363 million) for the farmers.
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