Wednesday, April 23, 2008

The Rice Crisis and How Not to Panic

Two days ago there was plenty of rice and today there is a rice panic. Let's look at what happened. First of all, there is plenty of rice in almost all markets. Read the Asian papers--they are reporting about the panic in America, not in their countries. Yes, the Asian news has reported on increasing prices and how difficult it is for their poorest citizens to afford rice over the last couple of months, but the sky wasn't falling until today. So the American middle class sees all of the protesting and starving people (repeated over and over again ad nauseum by the media) and they all go into a hoarding frenzy and head out to Costco and WalMart and start buying up hundreds of pounds of rice and wheat.

I don't need to tell you that if these people had been preparedness minded and bought a dozen extra grocery items over a longer period of time instead of panic buying in the short term, they would have a year's worth of food already stocked and wouldn't need to run out and buy as much grain as possible in a few days thus causing a temporary market panic and skyrocketing prices. Anyway, this type of activity becomes a media event fueled today by a few managers at Costco and WalMart who suddenly limit the quantity of rice a person can buy, further causing people to believe there is a shortage which both causes a quick rise in prices and spurs others to start hoarding, which causes a shortage.

Now the commodities traders are loving this. Remember day trading a few years back? Stocks kept going up and for a while every trade made money. Well this is about the same. Commodities investors note the rise in prices, other circumstances such as the weakening dollar, consumer fear, the use of edible grains to make biofuels, etc. and start bidding the prices for commodities (rice for example) even higher causing even more panic in the market. It becomes a vicious circle and pretty soon everyone is gripped with fear...and prices go up...and people start hoarding...and it looks like there is no more rice to be had anywhere...and everyone is gripped with fear...and prices go get the picture.

Here's how not to panic when it seems like everyone else is (and the media keeps repeating this message attempting to brainwash everyone into a panic):

  • Don't panic. Fear causes people to not think clearly and make stupid decisions.
  • Don't follow the crowd. If everyone is running to Costco to buy rice, go down to your local grocery store, and actually check out the sale ads. Pick up some loss leaders to add to your stores then go home and be content as you watch everyone else on TV scurrying around like rats in a cage.
  • Be flexible. Yes a 50 pound bag of rice has gone from $20 to $35 in only a couple of weeks. Meanwhile in my morning paper a local grocery store has a five pound bag of potatoes for 99 cents. Hmmm...50 pounds of potatoes would cost $9.90. Guess I'm going to have lots less rice and lots more potatoes in the near future.
  • If you haven't been through such panic economics before, ask an oldster about previous panics. There was the gas crisis in the early '70s. I seem to remember a coffee crisis years ago. There has been the tomato shortage, the romaine lettuce shortage, and the citrus shortage. There was a "Tickle Me Elmo" doll crisis that made the evening new for like a week straight and made some people a small fortune on EBay. Economics, like life, isn't a steady line on a graph--it is a continual period of ups and downs marked by some high highs and some low lows and a lot of in between areas.
  • Remember that markets tend to straighten themselves out eventually. And in every situation someone is going to benefit; right now it just happens to be farmers who, quite frankly, have been through hell and back over the last couple decades so right now I feel they have earned this period of increase for themselves.
  • Consider that in every situation, you get to choose how to react. Don't like high gas prices? Don't drive. Cut down your use of fossil fuel. The only time someone (or some entity) can have you over a figurative barrel is when you let them. The cost of rice is going through the roof? You still have choices--you can quit eating rice until the price becomes more reasonable, you can choose to pay the high price (it's your money you can do what ever you want with it), or you can even grow your own rice if you are irked enough about the situation.
  • Remember that fear breeds fear. Did you have three meals today? Most people in our country did. Are you afraid of something that is actually happening to you right now or is that ball of fear in the pit of your stomach brought about by something you think might happen?
  • Finally, we are a resilient bunch of people. The majority of us are going to survive no matter what happens. Taking the long view, there have been plenty of times over the course of history where people have suffered through the very worst (plagues, ice ages, tsunamis, wars, famines, etc) and lived to tell about it.

The bottom line is that you need to continue to be prepared for any eventuality. No matter what happens, you need to be astute enough, creative enough, and resolute enough to withstand whatever life might throw at you.

1 comment:

  1. Good points. People panic over little things when there is actually much they can do to prepare.

    Look to see tons of rice thrown out to the landfills over the next year due to improper storage methods.