Saturday, October 15, 2011

Peanut alert.

Really. If you eat peanut butter; stock up today.

A CNN Business story today details the coming peanut butter apocalypse. Last year at this time, the commodity price for a ton of US peanuts was around $750. Today; it's about $1,200.

The reason they give: severe drought and intense heat in the peanut belt last summer, so the crop is down some 13% from last year. Ok. Yes, climate change/climate chaos is upon us, and the economic impacts are already hitting us quite hard. I can easily understand why a 13% decrease in the crop would result in a ~40% increase in the price.

Soon after giving the cheery statistics, they go on to point out what a great opportunity this is for money changers to make a little more profit: Safe Havens; Gold, Yen, & Peanut Butter.

It is, of course, perfectly all right to make all the money you can, any way you can. It's your guaranteed right, actually. Never mind that peanut butter is often the last source of quality protein the poor can afford, and that it's a critical component of the new famine medications urgently needed in Haiti and Africa. Fascinating that the story praising the heroes of Haiti is covered by CNN also.

Here's the math on "investing" in food. Take peanuts, for an excellent example. World production is around 34 million metric tons. In the process of buying the crop from farmers, getting it to the people who process it, store it, and sell it to consumers, the peanuts change hands quite a few times. To facilitate that, and to let processors be certain they will have nuts to process next year, there is a "futures market"; where contracts to deliver peanuts at a certain time, say next July, are bought and sold.

Inside the peanut world, let's just say there are $50 billion worth of peanuts (a made up number with likely not relation to reality.) The peanut processors have, let us say, $40 billion in contracts on the books. Then- after that lovely article in CNN, a billionaire or two, from Argentina, Iraq, India, China- take their money out of oil, which is looking very risky; and use it instead to buy peanut futures. Now, let's say, there are $60 billion in the futures market- all chasing what used to be $50 billion worth of peanuts. The contracts are bought and sold daily- if you can sell the one you bought yesterday at $3/share, and you can sell it today for $3.10 a share- why wouldn't you? And here I am, with $500 million in my pocket I just took out of oil, and I need to buy peanuts- will I pay $3.15? Why yes, I will. The price is going to go up, yes? Everybody says so.

More money in a market, chasing a fixed quantity of commodity, will drive the price up. It's a law of physics that could have been written by Newton. The speculators doing this shriek, when you point at them, and swear they are providing a desperately needed service; more "liquidity" to the markets. It's a transparent self serving lie, of course; the markets functioned just fine a few years ago, when speculative money in those markets was legally restricted. But we believe a great many of those these days, one more won't hurt.

Guess who eventually pays the real money, to pay for all the profits? It's the end user, of course, that's the entire idea. In this case- it's the poor and starving. Literally; the starving.

Nice place we have here. So; better buy yours now. Of course.

It strikes me that getting speculators out of agricultural commodity markets would be a good thing to put on the list, for the Occupy Everything folks. The math is just really clear.


Dani said...

Just be sure, if you buy a load of peanut butter, that you store it in the fridge, or somewhere cool. Nothing worse than opening a new jar of peanut butter and the nuts have gone rancid :(

May be a better idea to buy the peanuts and store them in your freezer :)

Greenpa said...

Dani- seriously, you've had peanut butter go rancid on you? I really have never had that happen; in fact it's a mystery I've mused on repeatedly, as to why it doesn't spoil. If you smashed up a bunch of soybeans and treated them that way- or corn, or wheat- they'd be stinky slime in 2 days. Not peanuts, and I really don't know why. How old were your rancid batches? From whom/where?

Dani said...

Greenpa - I purchased it from a store in Cape Town, South Africa LOL. And trust me, there is nothing worse than rancid peanut butter.

Wonder how difficult it is to make your own peanut butter...?

Sandy from Omaha said...

Nice to have you back. Just wanted you to know how much I appreciate the math lesson. You have a way of putting things into a thought process that I can actually follow. I've often wondered how a 10% increase at the point of origin will sometimes result in a 50% increase for the end user. Quite often with 0% increase for the farmer, be it peanuts, chestnuts, etc...
We do have 10 jars of peanut butter in the pantry for now, although I wish it was closer to 30. PB is definitely one of our main proteins in this household. Will have to find another cheap source.
Not that it has anything to do with what we're discussing today, but I can't read this without thinking about what a difficult language English must be for an adult to learn. Or anyone for that matter. "Protein" is another one of those words that doesn't follow the rules. I before E.
Thanks again for the math lesson.

knutty knitter said...

My last jar of decent peanut butter cost $7 for a small jar. It is a bit of a treat round here! Prime, grass fed lamb chops are cheaper.

Serves me right for being a 'furriner' I suppose :)

viv in nz

CallieK said...

It is incredibly easy to grind your own nut butters - for peanuts, dry roasted works best!

Olivia said...

Here in Canada parents have become so freaked out about peanut allergies (and how come no one had peanut allergies when I was a kid?) that you'd be hard pressed to find a peanut anywhere within a 20 km radius of a school, church, daycare or even playground. One school has even banned soy nut butter because it LOOKS like peanut butter (????).

Maybe it's we paranoid Canucks that are driving up the price because we don't buy much anymore. Peanuts are the new cigarettes.

Except in my household. No peanut allergies here but God forbid I take any out of the house. Makes a person feel like a peanut pariah.

Greenpa said...

Dani- South Africa! I'm not personally experienced there, but I am aware that peanut butter is a major commodity throughout Africa, stored and shipped around in 55 gallon steel drums. I guess I would not be surprised if some got very old- and maybe diluted with a little something else, and sold again.

As KallieK points out, it's extremely easy to make your own; a food processor or even old hand-crank meat grinder will do the job pretty quick.

Olivia- the Peanut Terror is spotty down here in the lower 48. Some localities are as crazy as you report, and you can find about any level of crazy you want. I'm guessing/hoping the Terror will calm down in a few years, as a few hysterical parents grow up and come to the full realization that yes, life is dangerous for your child, and no, you can't really get the entire world to become babysitters for just your child.