by Eric S. Hadik
The grain markets are adhering to analysis for a sharp decline from late-2012 – when Corn & Soybeans fulfilled major cycle peaks and major upside price objectives – into 2014/2015. Specific downside price targets need to be met before a multi-year bottom is more likely.
Deflation Culmination: 2015?
That deflationary move – coinciding with multi-year declines in Gold & Silver and a projected upswing in the US Dollar (and related drop in the Euro from May 2014 into 2015/2016) – is expected to transition into another inflationary surge beginning in 2016. And that overlaps the parabolic culmination of another 40-Year Cycle (see Food Crises II).
In order to better understand the driving force behind these trends, and the governing 40-Year Cycle, we need to go back 200 years…
The eruption of Mt. Tambora (Indonesia) in 1815 and the ensuing Year without a Summer caused a devastating global food crisis in 1816–1819… and ushered in what what would ultimately be recognized as the worst famine of the 1800’s.
However, as is usually the case, it was not just this geophysical event that created a monumental challenge for world food production. Instead, it was the culmination of a 20-year period when the Napoleonic Wars (and other factors) wreaked havoc on crop production and global grain trade.
The Knockout Punch
The failure of Egypt’s wheat harvest in 1813 exacerbated an already strained food supply – just as the Napoleonic Wars were culminating – and ushered in the period when a series of major volcanoes lowered global temperatures & crippled crop production in the second half of the decade. Tambora was theknockout punch in this sequence of pummeling blows.
Even Tambora was not an isolated event. There was synergy in pyroclastic events in the 1810’s, with multiple volcanoes erupting over a 3-5 year period. (For over a decade, INSIIDE Track has documented long-term volcanic cycles that project a spike in activity in 2014–2017 – with diverse cycles impacting European/Mediterranean volcanoes, N. American volcanoes and Pacific Rim volcanoes. See related analysis at 2014-2017 Volcano Cycles.)
After Tambora triggered the worst famine of the 1800’s, a 40-year period ensued in which grain price swings vacillated wildly before finally returning to a more normal (relatively-speaking) pattern… leading into the 1850’s. The first (dramatic) phase was a crash in wheat prices – from 1817–1821 – leading into the Panic of 1819 and a collapse in the American economy.
The Troubling Trifecta
Although this returned grain prices to a more normal price level, it devastated farmers that had speculated and/or invested based on the artificially inflated grain prices of 1816 & 1817. And that devastated banks. And that devastated the public. Get the picture?
[1816/1817, not surprisingly, culminated a 40-Year Cycle that began in 1776/1777, that began with North America experiencing over a decade of drought.]
40 years later, it was the same old story as a bubble in wheat (coinciding with the onset of the Civil War Drought in 1856, a decade of climaticchallenges in North America) contributed to the Panic of 1857. Food Crisis. Bank Failures. Economic malaise. Check, check, check.
After an additional 40 years unfolded, it was famine in Europe and a wheat crop failure in Argentina that led to the collapse of Barings Bank and another economic debacle that included the Panic of 1893. A 6-year period of drought in N. America culminated in 1896, just as devastating droughts & famines beganin other portions of the world (Australia, India, etc.)
Food Crisis. Bank Failures. Economic malaise. Check, check, check.
And take special note of the recurring ‘Panic’ theme. These food crises do not occur in a vacuum and do not unfold in a vacuum. They are intertwined with the entire financial landscape… as should be expected. And each time the 40-Year Cycle produces a new Food Crisis, a new economic/financial ‘Panic’ is close by.
40 years after the devastation and panic of the 1890’s (centered around 1896/1897), the Dust Bowl ravaged American farmland & crops… in the midst of the Great Depression. Both drought and extreme heat plagued N. America, with 1936 recorded as the hottest year of the 20th century.
Again, it was the combined effect – the synergy – of multiple events that had the most devastating impact… the whole was greater than the sum of its parts. This time it was: Bank Failures. Economic malaise. Food Crisis. The sequence was jumbled but the results were the same. And there was an even bigger ‘panic’ – the Great Depression.
40 years later, drought, embargos and a new farm policy created wild swings in grain prices (and availability) in the 1970’s… and a panic in theequity markets in 1973–1974, during the early phases of a bigger ‘panic’ in the Dollar – leading to a 20-fold increase in the Dollar-denominated price of Gold.
The California Drought of 1976/1977 – like Tambora’s impact in 1816/1817 – was the straw that broke the proverbial camel’s back and ushered in another Food Crisis.
40 years later is 2016/2017! And all signs point to a brewing food crisis that is unique in many facets… while still conforming to the overall theme of these recurring 40-Year Food Crises. Before concluding (or dismissing) that a repeat is possible, let’s look at the context – both now and then.
Context & Correlation
In every previous repetition of the 40-Year Cycle, there was also government manipulation in the markets that exacerbated an already tenuous situation. From the inflationary practices of the 2nd Bank of the United States – chartered in 1816, against the vehement opposition of Thomas Jefferson and others – and their wanton use of paper money (sound familiar) – to the Corn Laws (a British institution) and gov’t Silver manipulation in the 1850’s, policy decisions magnified the impact of natural challenges.
From the reactive farm policies after the Dust Bowl to the ‘fencerow to fencerow’/’get big or get out’/’adapt or die’ farm policy of the 1970’s (combined with the hyper-inflationary impact of U.S. Dollar & gold policy of 1971–1976), hasty & impulsive political reactions – to one set of challenges – set the stage for much larger ‘actions’ and consequences in the years to follow (like the Farm Crisis of the 1980’s… following the Soviet grain embargo of 1980… following the short-sighted, ‘fencerow to fencerow’ farm policy of the 1970’s).
It is the way politics works… always reactive in nature and always dealing only with the urgent & immediate – while never recognizing the inevitableunintended consequences to follow.
This facet of the 40-Year Cycle is already confirmed in the 2010’s, beginning with things like TARP (and prudent, well-thought-out policies like ‘Cash for Clunkers’) and carrying through to QEs and other massive interventions and artificial stimulants. These policies – that attempt to manipulate the economy – are destined to have a much greater impact in the years to come (but not likely the impact that was desired), once their initial influence dissipates.
And, they place the world’s economies in a tenuous position with no room for error. With U.S. & global economies mired in an extremely fragile state, the ramifications of a very normal natural cycle could deliver a catastrophic blow… IF this 40-Year Cycle recurs with as consistent regularity as it has for over 200 years. 2016/2017 is the most likely time for that to materialize.
From an investor’s perspective, is it wiser to position in sync with this possibility… or AGAINST it?!?
How about from a human perspective?
The 40-Year Cycle has swung from one extreme to another – best illustrated in the contrast between the deflationary environment of the 1930’s and theinflationary environment of the 1970’s – and is likely to create another extreme in the late-2010’s. And food prices (and crop conditions) have been intimately intertwined with each of these swings.
Based on all of my cyclical & technical analysis, I expect a volatile combination of both. The inflationary surges of the 2000’s (brought on at least partially by artificially low interest rates) set the stage – sending many markets on a parabolic ascent into 2008 (devastating nations like Mexico, in which citizens could no longer afford enough corn to maintain a very basic diet).
Then, the deflationary crash of 2008–2009 (and beyond) brought up the curtain. The ensuing, artificial stimulants of 2009–2010 (and beyond) triggered another inflationary surge in many markets – leading into 2011 & 2012 (when first Gold & Silver, then many commodities, and finally Soybeans & Corn peaked). And then, once again, the rug was pulled out from under them.
That triggered sharp sell-offs in Gold & Silver, then commodities and finally grains. And all of that is projected to reach & create a deflationary trough in 2015. 2015–2016… and ultimately into 2018/2019… is expected to trigger another inflationary bubble in many of these markets, even as the Dollar is expected to begin a new decline in/after 2016. And that would usher in the final act…
From an economic standpoint, Stagflation is one realistic possibility when you combine the stagnant economic and labor markets with the price inflationof most of the past 12–15 years… and what is expected from 2015 on. Grains and Gold & Silver are expected to see a final decline… and then the fireworks.
Could a natural event (volcano or other) exacerbate an already-tenuous situation? Whether or not that is the case, the important question for global food consumers is simple:
Could 2014–2017 look anything like 1814–1817 (-1819)… or 1854–1857… or 1894–1897… or 1934–1937… or 1974–1977 (-1980), with regard to volatile swings in the prices – and availability – of food? Could a final decline then usher in a dramatic rally in food prices (watch 2016/2017)?…Only if it repeats the same consistent, precise and uncanny pattern seen during every phase of the Earth’s 40-Year Cycle!
Is it worth preparing for this possibility?… or at least considering it?? You be the judge, ITTC