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Newsletter  Late Summer 2012 Issue

Pricing and Purchasing

Climate and Agriculture

Late this summer, the long
drought finally ended. Its end
was predicted, its causes are just
beginning to be understood, but
we can already project winners
and losers.

While U.S. soy, spring wheat and corn
producers took major hits, Canadian wheat
farmers had good news this year, as
skyrocketing wheat prices coincided with the end of the Canadian Wheat Board’s price
monopoly in August. Other losers were beef, dairy and other livestock producers, as
production costs surged. Feed costs represent approximately 50% of beef and 70% of
dairy production costs in the U.S. Higher prices mean that consumers will also lose. But,
valuable lessons were gained as well with regard to our ability to predict such future events.

At Sosland Publishing’s stellar 35th Annual Purchasing Seminar (June 3-5 in Kansas City,
MO.… a “must” meeting for food industry executives), meteorologist Drew Lerner, President
of World Weather, Inc., linked drought patterns in the U.S., Brazil and western India to
“back-to-back La Niña events”. La Niña and El Niño result in massive changes to warm
and cool sub-surface temperature (SST) zones around the rims of the Pacific Ocean.
These changes impact sea currents and weather (i.e., moisture) patterns. The bottom line,
as Lerner explained, is that La Niña patterns cause major droughts and the period
2010 – 2012 witnessed back-to-back La Niña events.  Lerner predicted that the
development of an El Niño pattern beginning in July would relieve the drought by summer’s
end. From the hindsight of late-August, Lerner’s prediction was right on the mark. Does
Lerner’s prescience provide food companies a leading indicator for future droughts and
corn, soy and livestock prices?

The key would be to be able to anticipate development of La Niña and El Niño events. Here,
too, there have been some interesting developments that we would offer as food for thought.

There are several theories regarding what might trigger La Niña and El Niño events, but the
one that intrigues us the most is undersea volcanic and geothermal activity. It is only fairly
recently that scientists have uncovered vast areas of undersea volcanic and geothermal
activity in the Pacific and other oceans.

This link provides a graphic visualization of upwelling of sub-surface heat, as captured
off the coast of South and Central America by the ARGOS global network of buoys.

This link describes a recently observed phenomenon of large areas of floating pumice
(a lighter-than water rock form created by volcanic activity) off the coast of New Zealand.

The Pacific Rim represents a massive region of grinding and shifting tectonic ridges that
generates earthquakes, tsunamis and volcanic eruptions. The Pacific Rim has been
especially active in recent years (recall Japan’s 2011 Fukushima tsunami and, today, Anak
Krakatoa rumbles anew). At this point, a direct link between tectonic-generated volcanic and
geothermal activity and La Niña or El Niño events is only theoretical. It could be coincidental.
However, if such links can be definitively established, monitoring of the seismic activity
along the Pacific Rim could provide our food industry with an invaluable leading indicator
of drought conditions to come and provide ample warning to food producers and
purchasing agents to take anticipatory actions accordingly.

Meanwhile, it behooves our industry to pay close attention to what Drew Lerner, of World
Weather, Inc., will have to say in coming years.

© 2012 to BEST VANTAGE Inc.

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