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Kim Butler

Partners for Prosperity, Inc.

City:Mt. Enterprise

State: TX

I have 20+ years of handling alternative investments in cash, growth and income for clients nationwide.  I strive to help my clients with all things financial in every way possible over the phone and the web.  I own an alpaca farm which I enjoy working during my downtime.  I also enjoy gardening, writing and reading books.  I also train other advisors on Prosperity Economics.

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As Goes the Price of Oil, So Goes the Rise in Food Prices

The jump in oil prices has, of course,  farther-reaching implications than what you pay at the pump.

Rising food prices are in part at the root of the current unrest in the Middle East and Northern Africa. Protests began in Algeria and have spread to Tunisia, Egypt, Jordan, Sudan, Yemen, Libya, and other countries. There are other issues at play, including high unemployment and corrupt leadership, but as The Nation observed, rising food prices “provided the original impulse” and as they climb still higher in consort with oil costs, more protests are expected.

Any increase in oil prices may be felt at the grocery store. The relationship between oil and food prices is tied to technological advances in agriculture and farming following World War II. Oil keeps farm machinery running, as well as the vehicles that transport the crops to markets across town, the country and around the world. Rising oil prices also raise the price of fertilizer and other chemicals that are, in the words of the World Bank, “energy intensive” to produce.

There is also the alternative fuel factor. The Wall Street Journal cited U.S. Department of Agriculture figures that U.S. corn use for ethanol is projected at an unprecedented five billion bushels for the 2011-12 crop year. Biofuels production accounted for about 40% of corn demand.
Citing World Bank estimates, The Nation reported that whenever oil prices rise above $50 a barrel, a 1 percent increase in the price of oil results in a 0.9 percent increase in the price of maize, “because every dollar increase in the price of oil increases the profitability of ethanol and hence biofuel demand for maize.

The U.N. Food and Agriculture Organization’s (FAO) Food Price Index has increased for eight consecutive months and is at the highest level since it was created in 1990. The United Nations announced last month that global food prices hit a record high, and warned that further oil price increases coupled with stockpiling by importers to stem local unrest would push food costs even higher. The cereal market would be especially impacted due to depleted inventories of wheat and coarse grains.

“Unexpected oil price spikes could further exacerbate an already precarious situation in food markets,” FAO director David Hallam said in a statement. “This adds even more uncertainty concerning the price outlook, just as plantings for crops in some of the major growing regions are about to start.”