Higher Prices? Thank China
China's insatiable hunger for raw goods is starting to sting U.S. consumers
But a few observers see dire warnings for the future. Lester Brown, agricultural economist and founder of the Earth Policy Institute, thinks the recent increases in grain values are merely "the early tremors before the quake." Environmental degradation in China--loss of irrigation water and rapid urban expansion--has dramatically shrunk the land available for crops. The Gobi desert is growing by 4,000 square miles each year because of these occurrences. China's need for imports will dramatically grow as a result, he argues. And as China turns to the world market, "higher food prices could become a permanent part of the economic landscape," Brown warns.
On the oil front, Stephen Leeb, who manages the MegaTrends fund for U.S. Global Investors, argues that the world is entering a new era in which supply cannot keep up with demand. Although he has no predictions for the next few months (and admits that crude oil prices could drop somewhat, as they did last week), Leeb predicts a dramatic increase over the next five to 10 years. "The stark fact is that the world has very little excess capacity, and it's all in the hands of a very volatile country--Saudi Arabia," says Leeb. In his recent book, The Oil Factor, he predicts $100-a-barrel oil will lead to global inflation. "We have to pray it does so in a gradual fashion," he says.
Commodity upswing
The prices of many raw materials have risen sharply over the past 12 months.
[Chart data are not available.]
[Chart labels]
Soybeans (Per bushel)
March 2003
March 2004
5 6 7 8 9 $10
Crude oil (Per barrel)
March 2003
March 2004
26 28 30 32 34 36 $38
Steel (Per ton, hot-rolled sheet)
March 2003
March 2004
230 280 330 380 430 480 $530
Sources: Energy Information Administration, USDA National Agricultural Statistics Service, Purchasing magazine
Graphic by Rob Cady--USN&WR
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