Expert Commentary

Deflation - Hints of Country Food Hoarding

Food export bans smell of protectionism.

In the Great Depression of the 1930s, economic protectionism was a manifestation of the negative social mood sweeping the globe. Now, as the stock markets are in the midst of another historic crash, there are early hints that food protectionism is on the rise.

Bloomberg reports that Kazakhstan has banned exports of flour (of which it is a major shipper) and also carrots, sugar and potatoes. Serbia has done the same for its sunflower oil and other products, whilst Russia is currently assessing the situation. It could be early evidence that negative social mood is, once again, leading to negative social actions such as countries hoarding food (already being done by individuals). Nationalism and economic protectionism have been apparent for a few years now, of course, and globalization has been on its deathbed for longer. But food hoarding would ratchet things up a few notches.

What might it mean for food prices? Where there are shortages, prices will move higher. Where there is glut, they will move lower. Overall, the evidence suggests that wholesale agriculture prices are still in a deflationary trend.

The chart below shows the agriculture-heavy commodity index, the CRB. The bear market started in 2008 and the Elliott Wave structure currently suggests that Primary degree wave ((5)) of Cycle wave c is in operation. Wave ((5)) does not appear complete at this juncture. In fact, employing Elliott Wave channeling, connecting the start of wave a to the end of wave b and channeling from the end of wave a, we can identify a target of where wave c might end. In 2021, that target comes in at 70. That's 45% below current levels.

The conclusion is that commodities are closing in on hugely significant low point, but there are probably more declines to come before that is reached.

200330 - MG