If business managers in various commodities markets had requested capital two years ago to meet longer run demand with increased capacity in the short run, but not planned to make money for two-three years, it's unlikely their projects would have been funded.
The oil industry stopped providing large amounts of excess refining capacity years ago, because it depressed profits. Lee Raymond is responsible for bringing higher, more consistent refining profitability to ExxonMobil by his more closely aligning refining capacity with demand growth.
But the recent economic events in Asia, and the corresponding rise in living standards there, took him, and many other businessmen, by surprise.
Hey, they're capitalists and consumers after all! Who knew? So as their incomes have increased, and they have amassed more wealth, they are eating better and buying/driving cars. Just like Americans and Europeans.
Would some plodding inter-governmental task force have gotten this one right? Avoided food price inflation and supply shortages?
Doubtful.
The good news is, markets, via profit-driven suppliers and demand inelasticities, will solve this disequilibrium pretty darn fast.
Demand and supply mismatches in grains could be resolved within 18 months, or a little more than one growing season. Poultry and beef will take a bit longer, with the meat supply, now being slaughtered as margins narrow, will probably expand in 3-5 years.
Energy has been responding to higher price signals for two years, and will continue to do so until, suddenly, oil and natural gas supplies will outpace demand, and prices will plummet.
If we let them.
Of course, if the US Congress or a new President begin to tamper with natural economic cycles and price signals, expect more pain and longer timeframes during which to wait for producers to develop more capacity for a suddenly more-demanding world.
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