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COMMODITY INSIGHT

by: Jerry Welch

September 9, 2006 --On October 24, 2002, in the business section of rediff.com an article was written entitled, "India aims for new markets as world wheat supply falls." The author wrote, "India, anxious to cut bulging grain stocks, expects to find new markets for its wheat with a firming in global prices and squeeze in world supplies in the coming months with fresh demand emerging in South East Asia and the Middle East because of attractive prices. Worldwide there is a shortage of wheat and India is one of the few markets with a surplus." At the time the article was written, Chicago December wheat was quoted at $3.96 a bushel, up from $3.63 a bushel, 10 days earlier. Moving ahead to May 17, 2005 in the business section of rediff.com an article was written entitled, "India to face wheat shortage soon." The author wrote, "India may become a wheat importing country with a lower than expected output forecast this year at a time when domestic consumption has already outpaced production, a commodity expert said on Tuesday. At the time that article was written, Chicago December wheat was trading at approximately $3.48 a bushel.

As recently as 2002, India was an exporter of wheat because domestic production and stocks were ample enough to allow them to take advantage of high world wide prices. However, three years later Indian wheat production was unable to keep up with consumption and the nation faced the prospects of being an importer. It has been an abrupt reversal of fortune in a very short short period of time.

This week in the business section of keralanext.com an article was written entitled, "India faces acute wheat shortage. In the first few paragraphs the author wrote, "India's food security has never been this bad. There's very little wheat available even in the international market and this has put government food programs in jeopardy. The full impact of a seven million ton shortfall in wheat procurement is now being felt despite a set of measures to ease availability." It was interesting to note that this article used the word, "acute" to describe the the situation facing India.

In 2002, when India had enough surplus of wheat to be an exporter, Chicago wheat was trading at $3.96 a bushel. In '05, when India was faced with a wheat shortage, Chicago wheat was trading at $3.48 a bushel. This week, when faced with shortage of wheat so "acute" India become the world's leading importer, Chicago wheat futures was at $4.151/2. Feast or famine in India, wheat in Chicago has been locked between $3.48 and $4.151/2 a bushel. Historically, such price levels are not high priced.

On the editorial page of, Times of India an article entitled, "Grain of Truth," stated, "We aren't and ever were, a food self sufficient country. According to studies by the Indian Council for Medical Research, even our cereals output barely measures up to per capita nutritional needs. This cannot change unless India's food output, now growing at two percent annum, outstrips population growth." The editorial written but a few days ago, hinted of a Malthusian catastrophe just around the corner.

In 1798, Thomas Malthus published An Essay on the Principle of Population, describing his theory of the development of human populations. He argued that population, when unchecked, increases in a geometric ratio while food supplies could only increase arithmetically. His prediction that an impending catastrophe was mathematically inevitable gave him the title of the First Great Doomsayer.

According to The Economist, on the other hand, in an article written in 2001, Malthus was unable to foresee, "the developments in agricultural technology that squeezed more and more food out of each hectare of land. It is this application of human ingenuity that has boosted food production, not merely in line with, but ahead of, population growth." If The Economist is correct, the agricultural revolution will prevent a Malthusian catastrophe from ever taking place.

My work suggests that wheat prices are cheap in light of the situation in India. A $1 a bushel rise from current levels would not surprise me one bit. But as always, only time will tell.

For a sample of my $199 A YEAR newsletter, contact me at 406-682-5010.

(The information in this article is the opinion of Commodity Insight's Jerry Welch and subject to change without notice.)

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