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Water, Wheat, and Oil are in Short Supply

Jupiter, FL (PRWEB) April 4, 2008 -- Sean Brodrick takes a closer look at the relationships between water, wheat, and oil. Mr. Brodrick discusses how each resource affects supply and demand for one another.

Saudi Arabia is going to start importing wheat early next year -- 250,000 tons by next spring. The reason is simple: they need to save water. Underground water levels in Saudi Arabia are dropping by at least 16 feet a year in areas of "heavy" cultivation, according to a U.S. government report. Eventually, the Saudis will probably import all their wheat -- about three million tons a year. This could get expensive -- the price of wheat has more than doubled in the past year. But the Saudis don't care about the price of wheat because water is much more precious than oil in the Middle East.

The Saudis get most of their water from aquifers which are being replenished at only about 10% of the extraction rate. Desalinization has its limits and even though the government picks up the fuel tab, a new desalination plant costs about $200 billion.

Over 80% of the Kingdom's water use is for food. And Saudi Arabia isn't the only Middle East country with an empty bowl to fill. Egypt, the world's second-largest wheat importer, saw its wheat imports jump 43% to 5.2 million tons in the first eight months of the year that began July 1.

The Middle East's most populous nation imported seven million tons of wheat last year, half its annual consumption. Arab countries have less than 5% of the world's population and control over 40% of the world's oil supply. However, they get only 2% of the world's rainfall and have only 0.4% of the world's recoverable water resources. Their populations are booming, which means the water has to serve more and more people. So it gets tougher for these countries to feed themselves.

In the end, it's a global problem:

?    Worldwide supplies of wheat will fall to 110.4 million tons by the end of the marketing year on May 31, the lowest levels in 30 years.

?    U.S. stockpiles may drop to 6.6 million tons, a 47% drop from the prior year, according to the U.S. Department of Agriculture.

?    Other grain supplies are dwindling, too. Soybean stocks are at a 35-year low, and world rice inventories are at the lowest level since the 1970s.

Over the past eight years, the price of food worldwide has increased 75%; the price of wheat has gone up a dramatic 200%. And the rate of inflation is accelerating. In a recent report, the United Nations predicted that food prices are likely to remain high for a decade.

?    As of December, 37 countries faced food crises, and 20 had imposed some sort of food-price controls.

?    The prices of the world's three main grains -- rice, wheat and corn -- have all more than doubled in the past year.

?    Part of rising food prices is due to rising fuel prices -- as the Saudis raise the price of oil, the U.S. is going to be raising the price of wheat.

?    Another part of the equation is weather. Extreme weather shifts over the past two years have reduced the worldwide wheat harvest by nearly 10%. And it's not just wheat. Since 1971, in the United States, droughts or floods have wiped out up to a third of the Midwest corn crop four times.

?    Wheat production in South America and Western Europe has been cut from 5% to 20% in each of the past two growing seasons.

?    Australia was once the second-largest exporter of grain, harvesting about 25 million tonnes in a good year. But the worst drought in a century reduced the crop to only 9.8 million tonnes in 2006 and 13.1 million tonnes in 2007.

The problem is exacerbated by people in China and India are changing their diets -- eating more and better food. The Chinese ate just 44 pounds of meat per capita in 1985. They now eat over 110 pounds a year. Each pound of beef takes about seven to 10 pounds of grain to produce, which puts even more pressure on grain prices. Overall, food prices rose nearly 5% in 2007, according to the U.S. Department of Agriculture, and should rise by at least that much this year, too.

Demand for U.S. wheat supplies has increased 51% since June 1, compared with the same period a year earlier, USDA data show. But the U.S. has a growing water problem, too. Agriculture takes a lot of water in the U.S., accounting for 80% of the nation's consumption and over 90% in many Western states. And the U.S. government projects that at least 36 states will face water shortages within five years because of a combination of rising temperatures, drought, population growth, urban sprawl, and just plain old waste.

Like Saudi Arabia, the U.S. has to look beyond household consumers to agriculture. While just 16% of all harvested cropland in the U.S. is irrigated, this acreage generates nearly half the value of all crops sold.

"There are firms trying to find grains that will grow with less water, and solve all the other problems I mentioned today. Not only is that good news for the planet, it's also good news for investors looking to help out and possibly make big profits in the process. Look, I think oil, water, and wheat are all in major supply/demand squeezes that aren't going away anytime soon. I expect them all to trend higher in 2008 and beyond. And I think investors need to position their portfolios accordingly," states Brodrick.

To read this issue online, please visit:

http://www.moneyandmarkets.com/Issues.aspx?Water-Wheat-and-Oil-in-Short-Supply-1617

About SEAN BRODRICK & MONEY AND MARKETS     

Sean Brodrick joined Weiss Research in 2000 as an analyst, bringing more than 25 years experience as a journalist and financial analyst to the position. He is Weiss Research's small-caps specialist, especially in natural resources, and is the editor of the company's Red-Hot Canadian Small-Caps, as well as a regular contributor to its daily e-letter, Money and Markets.

Previously, Mr. Brodrick was the investment director of The Sovereign Society, the world's leading publisher of offshore asset protection strategies and global investment opportunities.

Recognized for his expertise on Canadian and Australian investment opportunities, Mr. Brodrick has been featured on many financial talk shows, including CNBC Squawk Box and Bloomberg Market Line. He is a weekly guest on Market Matters Radio, a contributing columnist to MarketWatch.com and a frequent commentator on one of Canada's premiere financial websites, HoweStreet.com. His report, "70 Days to Empty," has garnered acclaim for its analysis of the forces pushing America toward its next oil crisis and was described by

The Daily Reckoning as "the most important report you're likely to read this year," while his knowledge of uranium has helped investors earn solid gains on the commodity.

Mr. Brodrick holds a B.A. degree from the University of Maine.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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