Tuesday, April 26, 2011

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Garlic becomes hot commodity outside stock market

  • Tuesday, April 26, 2011
  • Thùy Miên
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  • Over the past 18 months a financial bubble has been building that rivals land speculation in its momentum and lack of reason. In China the price of garlic has skyrocketed. The roller coaster began in 2008 when the price dropped significantly due to overproduction in the market. Subsequently, in 2009, acreage planted to garlic was cut back. Also in 2009, the swine flu swept through Asia, causing panic and, believing garlic to have natural antibiotic properties, demand exploded. At first the laws of supply and demand prevailed and the price rose accordingly. Then speculators took notice and wholesale prices have been surging well into August of this year. Had you invested in crude oil or gold futures in the year 2009 you would have seen a robust return of 100 percent and 27 percent respectively. Had you put your money in Chinese garlic, you would have enjoyed more than a 600 percent return for your investment.

    Unfortunately you cannot add garlic to your portfolio as there is no futures market for it. In other words, it is not traded on any stock market. Those who made big bucks (or rather, yuan) on garlic went straight to the farmer to buy it, stored it and sold it in parcels as the price went through the roof.
    Jerry Lou, a China strategist at Morgan Stanley in Hong Kong, said “Local investors have made serious money in garlic.“ “It’s been a great bull market for commodities across the board,” said Larry Schneider, director of business development at Zaner Group, a brokerage firm specializing in futures and commodities. “But I can’t remember when anything last shot up like this.”
    So, why is a column about local food focusing on a crop going wild on the other side of the planet? Because in a global economy everything is local. Fifty percent of the garlic on U.S. supermarket shelves comes from China. For a time, the huge supply and low price was driving prices down, making it difficult for U.S. growers to compete. This year American garlic growers can benefit from the boom. Though we haven’t seen the price frenzy of china, the wholesale price of domestic garlic did increase 70 percent from March 2009 through March 2010, according to Bill Christopher, co-owner of California-based Christopher Ranch, the biggest domestic supplier of raw garlic in the U.S.
    Vermont growers who sell locally likely didn’t participate in that price hike because our prices were already fairly high. We still may benefit, though, if out-of-state prices begin to catch up to ours and the choice of buying local becomes economically competitive. I have noticed that the fever to get in the garlic trade has been climbing; as of six years ago it seemed like everyone and their plumber was starting to grow garlic commercially. (Truly, my plumber, Tom grows a small crop as a sideline). My neighbor, a part-time farmer has increased his garlic acreage every year. My former employee, Eliza, left my farm to start growing garlic exclusively. And even though I have been on hiatus from commercial farming for two summers, I still plant up to 50 pounds of garlic each fall to keep the seed stock going. With prices of organic seed garlic cresting $20 a pound it is well worth the effort should I return to full-scale farming anytime soon.
    With all of this land turned over to grow garlic are we heading toward a bubble of our own? If I had the ability to predict future commodity prices such as this one I would have a nicer tractor by now. I can say that demand for local garlic remains high in Greater Burlington and stores that sell it such as City Market have historically exhausted supply by early December. The wholesale price of Vermont garlic has remained steady for the past several years and my guess is it would take more than an epidemic to send it into a frenzy. This sits well with me because with the frenzy comes the inevitable crash. Still, I got an interesting follow-up call from James Morrell, the produce buyer from City Market after we had spoken about the garlic situation in China. Morrell told me that though he did not see a significant increase in conventionally grown garlic prices over the summer, in the past week, for no apparent reason, the wholesale price shot up 6 percent.

    (Source: http://www.burlingtonfreepress.com/article/20101008/LIVING06/101007024/Garlic-becomes-hot-commodity-outside-stock-market-?odyssey=nav|head)

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