Not far from the Oregon Trail, in a beautiful valley where 90 percent of the country’s hazelnuts are grown, are the offices of Auxier Asset Management and its founder, Jeff Auxier.  In addition to managing over $400 million in assets, Auxier is an owner and operator of a farm, where he grows hazelnuts, timber, hay, and raises cattle. 

We turned to Auxier to understand the recent surge in agricultural prices, and spoke with him on June 6, 2008.

A new book, The End of Food, by Paul Roberts (whose previous book, The End of Oil, won numerous awards), also explains many of the long term trends in the agricultural commodities.

Why a Gallon of Milk Costs More than a Gallon of Gas

 “Globally, we have under-invested in agriculture since 1990.  There has been a dramatic drop in technology research,” says Auxier.  Going back 300 years, there have been regular cycles, lasting approximately 18 years, characterized by declining food prices leading to food shortages, followed by a surge in prices and   investment in research and development.   From 1975-2005 food prices dropped by around 70%, adjusted for inflation.  He says, “The food market was flooded, and wheat and grain prices went down without a lot of investment.”

Now we are on the up cycle.  “A perfect storm triggered the surge in food prices,” says Auxier.  Its elements include a globally growing middle class, drought conditions in Australia, which cut back on grain production and the demographics of the U.S. farming industry (where the average age is now 62) The bio-fuels mandate, which took away one third of the U.S. corn crop, and urbanization, which has taken away large areas of desirable farmland, including in local Portland also fueled the deluge.

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