note on rp prices q3 2008 fob morocco 450 500, page-53

jmca the world has consumed more grain than it has produced in 8 of the last 9 years (I am assuming we will once again fall short of production goals this year because of the US floods). Ethanol has only been a factor for the last 3-4 years in any meaningful way. This story is a result of a large number of factors - 40 year bear market lead to underinvestment in capacity for grians and fertilizer, declining land base, declining water aquifers (40% of crops globally are irrigated), variable weather, marginal profitability, the list goes on ...

Demand destruction is occuring in the developed world but it is more than being accounted for by farmers like me who are now applying significantly more fertilizer to capitalise on high grain prices. But if demand is being curbed in the developing world anticipate subsidies to increase. India already spends as much on its fertilizer subsidy than its defence budget. And the EU recently announced it would move subsidy payments to European farmers to production subsidies in developing African nations ie fertilizer subsidies.

Fertilizer as a percentage of income in today's farming hasn't really changed - we're spending more but we're making more. But the risk has greatly increased if you have production failure!