mdef metals defense energy food

What is MDEF™ Investing? Strategy before tactics. Strategic investments dictate tactical actions in the Metals, Defense, Energy & Food sectors.

- Jeffrey C. Borneman

Ignored But Getting Critical - Drought & Food Inflation

Jeffrey C. Borneman | August 15, 2014

Although not headline news, the North America drought extends very far south. Parts of Central and South America are also experiencing a paradigm-shift drought causing "widespread damage to crops, shortages and rising prices of food, and worsening hunger among the region’s poor."

"Extremely poor households across large areas of Guatemala, Nicaragua, Honduras, and El Salvador will experience a rapid deterioration in their food security in early 2015," reports Reuters. 

The drought is rearranging commodity transactions all across South America. An example: Colombia will reduce gas exports to Venezuela to ensure it has enough fuel to run its power plants. Minister of Mine and Energy announced on Monday, prompted by the threat that dry weather from an imminent El Nino weather anomaly could cut hydroelectric generation (see analysis of similar Lake Mead situation here and here).

The drought exacerbates the labor situation (unemployment) as well with "thousands of families in the region now too poor to buy enough food for survival ... poor harvests are pushing up prices of staple foods while coffee producers are hiring fewer seasonal coffee pickers and paying lower wages because of a coffee leaf rust or roya epidemic across Central America."

"Consider that life-giving resource, coffee. Between January and April of 2014, coffee bean prices increased 72 percent on global markets. The United States retail price rose about 33 percent. The price increases reflected (the) drought in Brazil," (Reuters).

"In Nicaragua and Honduras, red bean prices rose by up to 129 percent between January and June 2014," according to FEWS NET.

Most Americans still equate water shortages with the mere inconvenience of higher water bills. Investors, however, will recognize that throughout history, massive droughts caused the rise and fall of whole civilizations because without water, you have no Food - which leads to massive unrest of the populace. We remember what happened in Venezuela early this year as water shortages and the resulting Food Inflation caused rampant crime and more than two months of anti-government unrest leaving 41 people dead and more than 700 injured.

California in particular, without rain for two years, is now firmly in a "Defcon 1" stage of drought with individual farmers pumping water from a depleted aquifer to maintain this year's crops. For several generations the US imported very inexpensive Food from Central and South America. The time of inexpensive Food has ended.

Let one of the above quotes sink in a bit: " ... too poor to buy enough food for survival." This is the story that investors must understand. While Metals (money) and Defense (arms) are key players in today's Wars for Energy (oil), we cannot ignore that without abundant and affordable Food, we perish. We cannot have Food without abundant and affordable water, we are left adding to the reasons for more Defense. 

If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.

comments powered by Disqus