Tuesday, February 8, 2011

Krugman on grain prices

Here and here.  From the second post:
By the way, the article says that China is largely self-sufficient in grains, which is true. But in recent years China has become a huge importer of soybeans, which compete for land and other resources with grain production; that’s how Chinese growth puts pressure on world food prices. If China has to import wheat, too, that’s seriously ungood.
I think there are both fundamental and technical reasons for the grain price run-up.  First, the Russian drought started moving the markets up, that drew the attention of the funds.  It was pretty clear after Bernanke rolled out QE2 that money started pouring to commodities, as the dollar started to slide.  That made exports go up, since they were cheaper.  Thus, more demand. Wash, rinse, repeat.

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