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If you thought the metals were cheap, compared
to their historical values vs. the eternal measure of value--gold--then take a
look at the grains! They are on the order of 1/10th their pre-1930
values. I'm not quite sure what to make of this. The "green
revolution" has apparently brought down grain prices, as we see a
decline in prices during the 1950s/1960s when metals prices were rising. This
can be explained to some degree as a process of diminishing quality
(pre-1930s grain is "organic" today) and a mining of natural
resources (topsoil, groundwater, etc). In any case, I think it is possible
that grains prices could begin a secular climb back toward their 1920s
levels, over many decades, as the mining of natural resources falters and
population demands continue to increase. However, I am not going to say that
process will begin today, since grain prices have been low for a long time.
It is worth noting that world stockpiles of grains have been falling for
several years, and are now at multi-decade lows on a days-use basis. At the
surface, this means that the world has been consuming more grain than it
makes. It also means that holders of grain stockpiles have been willing to
draw down their inventories at low prices. In short, it looks a little like
the uranium market did about seven years ago.
There have already been protests in Mexico
over high corn prices. There is some possibility of huge increases in grains
prices going forward, on the order of 5x, as gold goes up (the dollar falls)
and grains go up in relation to gold.
Once again, these charts only go to the end of
2003, but I have put their most recent prices and gold ratios in text.
Nathan
Lewis
Nathan Lewis was formerly the chief international economist
of a leading economic forecasting firm. He now works in asset management.
Lewis has written for the Financial Times, the Wall Street Journal Asia, the
Japan Times, Pravda, and other publications. He has appeared on financial
television in the United States,
Japan, and the Middle East. About the Book: Gold: The Once and Future
Money (Wiley, 2007, ISBN: 978-0-470-04766-8, $27.95) is available at
bookstores nationwide, from all major online booksellers, and direct from the
publisher at www.wileyfinance.com or 800-225-5945. In Canada,
call 800-567-4797.
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