The US may be contemplating what to do about a pending currency or trade war but Main Street should prepare for a food war for the next several years as hyperinflation is becoming a reality.
The rise in food prices in 2008 was the direct result of the Farm Act of 2008 that reduced the assigned acreage of farmland in the US based on projected high demand and a continuation of yield per acreage.
The result since then has been an increase in demand and a reduction in yield across the board.
The figures obtained from the Economic Research Service, a division of the USDA, shows that agricultural acreage in the US was reduced in 2008 from 39.2 million acres to 32 million acres based on the assumption of rising prices and steady yields.
The report further states that a reduction in farmland, combined with a projection of continued high demand, justifies the diminished enrollment in the Conservation Reserve Program (CRP) starting January 2009.
In 2010 the yield per acreage has diminished by 20% to 30%, depending on the crop, leading to low reserve supplies and unforeseen high commodity prices.
The Farm Act of 2008 has not only resulted in an intentional reduction of acreage across the US, it has also redirected subsidized crops to be planted for non-consuming purposes and has effectively reduced the natural food supply.
Commodity prices are surging on the news of high demand but also on the artificially low supply both of which are a direct result of the Farm Act of 2008.
Today we are witnessing an increase in commodity prices that will not only result in high food prices but also cause a reduction in exports because of low reserve and supply.
The reduction of CRP acreage combined with a lower yield in the 2010/2011 harvest season are the two main factors that will cause food prices to rise and cause hyperinflation in the US.
The economic crisis that began with subprime loans and the collapse of the entire US financial system now finds its way to the core of Main Street America: food prices.
One can debate at length whether the currency markets function rationally or whether energy prices are realistic and adequately reflect reality.
One cannot debate whether a Farm Act or a CRP are ultimately in the best interest of the consumer, whether he is local or an importer.
The reality is that we have instigated a food war and subsequently an inflation tsunami by reducing the agricultural acreage without taking into account a naturally cyclical occurrence of reduced yields based on prevailing weather patterns.
In 2011, consumers will be faced with the obvious: less acreage, less yield, less supply and higher demand for food products.
The result will become visible in the grocery stores on the street corner and will be felt most by the middle class: less grocery bags, less food and a higher checkout ticket to sign for when one swipes a debit or credit card to pay so they can feed their family the next week.
Written by Nick Doms © 2010, all rights reserved.