Y2K bug overshadows commodities trade

Monday, 16 August 1999 1:22 (GMT)

(UPI Analysis)

By SAJID RIZVI

LONDON, Aug. 15 (UPI) - Commodity markets are living in fear of global disruption resulting from millennium bug problems that experts say won't be resolved this year because of the high cost of replacing embedded microchips.

In some cases, affected institutions may find it easier to rebuild than to replace production and distribution systems, adding yet unknown costs to trading of commodities, say London commodity traders.

Concern over the Y2K problem confronting the global commodity scene emerged in a World Bank report this month. A cautiously worded commentary in the bank's Global Commodities Report warned, "Regardless of whether the disruptions to occur are large or small, the anticipation of Y2K will lead to changes in consumer and producer behavior that could have significant impact on commodity markets."

The consequences could include hoarding, shortages and higher prices, the bank warned. Fear of computer and embedded-chip failure has caused pundits to predict "major disruptions - even global recession," the World Bank said.

The U.N. Food and Agriculture Organization has dubbed the millennium bug "one of the most dangerous pests threatening farmers." The FAO warned in a May report that the entire food chain is vulnerable to the Y2K problem.

"As we near the turn of the century, concerns will undoubtedly increase and problems will multiply," the World Bank said. The bank based its warnings on the assessment that "Y2K resembles other major events that could have catastrophic outcomes, such as war or a natural disaster." Faced with either, everyone from food and raw material processors, wholesalers and retailers to the ordinary consumer tends to stockpile.

This, the bank said, may push up demand and trigger price rises, or lead producers to overproduce, creating glut conditions which in turn could cause prices to crash. "At the moment, Y2K compliance is very uneven throughout the world," Eva Lystad, coordinator of the bank's InfoDev program, told United Press International. "Many countries will not be able to complete upgrading their systems this year, but we are helping them in any way we can."

She said the bank had distributed $20 million in grants and technical assistance but had requests for $42 million. "We need more donors to come forward with cash so we can extend the program," Lystad said.

The oil industry has already predicted stockpiling due to problems with production, refining, storage and distribution systems. But unlike many food and raw material producers from the developing world, the petroleum business is well funded and equipped to deal with Y2K problems.

The millennium bug differs from war or a natural disaster "in one important aspect - it is global (and) everyone will be affected," the bank said. A typical computer clock with a Y2K problem holds the date - month/day/year or day/month/year - in two-digit format, making the chip unable to know the true year when 99 becomes 00. This confusion can cause equipment to malfunction and databases to crash, as well as more unpedictable results.

Tests being carried out by experts to fix Y2K problems caused raw sewage to discharge in a Los Angeles city park and shut down telephone services in Canada and a nuclear power reactor in Pennsylvania - just some of the recent mishaps recorded by the World Bank.

Transportation bottlenecks caused by computer failures are the biggest risk, according to commodity traders and other experts. "Since a large share of global commodities production is traded, a disruption in our capacity to transport commodities could lead to local shortages and surpluses," the bank said. "The transportation sector may face disruptions because of computer failures at the end of the year, but even before then, it may face a demand surge which disrupts normal shipping patterns."

The bank said stockpiling before the end of the year could overburden the global transportation system. The millennium bug fears are already being reflected in freight prices. Dry bulk ocean freight rates increased 14 percent in the April-June quarter and rose 45 percent since January lows. Experts say Asia's economic recovery contributed to the price rises, but Y2K was a key factor.

A continuing surge in demand and higher prices could impact commodities in different ways. A shortage of shipping space could hit high importers of food, fuel and raw materials. High-value bulk commodities and manufactures could squeeze out low-value commodities such as grain and tropical timber. This would disrupt normal shipping schedules and trigger wide price swings as exporters built surpluses and importers faced shortages. Further down the line, the millennium bug is seen as a threat to food security in a variety of ways.

Most water, electricity and gas production systems worldwide have embedded microchips that may be too costly to replace or may not be replaced in time due to poor funding, or lack of information or expertise.

In China, officials have said public financing needed to fix the problem simply is not there. Zhang Qi, director of the Ministry of Information Industry's Y2K working group, told a seminar that China faced "a huge gap in the funds required" to prepare state industries for the new millennium.

She said state-owned enterprises faced hardware and software bottlenecks, indicating about 40 percent of power grids still needed to be made Y2K compliant. In South Africa, provincial governments including 843 local authorities were identified by the National Year 2000 Support Center as "one of the potential weak links in the nation's business supply chain. "

A study said "although some municipalities still had a fair amount of work to do, the prognosis was no longer for chaos...as long as the local authorities remained committed" to fixing the problem. Statistics Canada reported that small primary operations like farms were among the least prepared for the problems associated with the millennium bug. Meat producers using time-sensitive feeding and watering systems said their equipment is at high risk of Y2K crashes.

Jack Wilkinson, president of the Canadian Federation of Agriculture, said Canadian farmers and farm managers until recently were under the impression that this was "a big-business problem" unlikely to affect them unless they used a computer.

"Unfortunately, they are wrong," he said in a statement. "The Year 2000 computer bug is a problem we all share but, as more of us are coming to realize, it is a problem we can manage. "Like any other pest on the farm, this bug can be controlled, if not eliminated, with a bit of research, some careful planning, and action before it becomes a serious problem," Wilkinson said.

But experts point out that raw material producers in less resourceful and cash-strapped countries who face identical problems would be hard put to replace microchips in almost everything from tractors to irrigation systems.

Even U.S. business and industry is not secure against the Y2K problem. A survey by Cap Gemini America Inc., an information technology and management consultancy, said this month only 48 percent of the largest U.S. companies expect all of their critical systems to be ready for 2000.

Three-quarters of those surveyed said they experienced a "Year 2000- related failure," up slightly from 72 percent last quarter. U.S. firms "very likely" to stop doing business with non-compliant partners leaped from 21 percent to 36 percent since May - a 41 percent increase.

But experts agree the real test for the international commodity trade will come in the new year, when many partners will discover each other's readiness for a bug-free trading environment.

"That's the great unknown - we'll only know how to handle a crisis when it comes," said one London trader.

======================================== End

Ray

-- Ray (ray@totacc.com), August 15, 1999

Answers

Snip:

"Tests being carried out by experts to fix Y2K problems caused raw sewage to discharge in a Los Angeles city park and shut down telephone services in Canada and a nuclear power reactor in Pennsylvania - just some of the recent mishaps recorded by the World Bank."

Is this the first time that these incidents have been linked to y2k in the media??

Ray

-- Ray (ray@totacc.com), August 15, 1999.

Where is the World Bank list of recent mishaps?
Where is the best list so far of Y2K accidents?

-- oo (oo@oo.oo), August 15, 1999.

Ray, Do you have a URL for a hot link?

I forward some of the more important posts from this forum to others.

This is a significant post. Thank you.

-- Bill P (porterwn@one.net), August 15, 1999.

Bill here is the link, some heavy duty stuff here:

Link

Ray

-- Ray (ray@totacc.com), August 15, 1999.

Thanks Ray,

Yet more evidence seeps out in dribs and drabs that commodity trading/banking will essentially be toast.

This fits in with the elite agenda to introduce new currencies (gold/silver backed), after having blamed y2k for the collapse of the financial infrastructure - which would have imploded anyway due to amongst others, Japan, derivatives, hedging, consumer debt, junk bonds, the US debt in the trillions etc. etc.

They are now looting gold while propping up the markets until rollover.

Eyes open, ears to the ground...

-- Andy (2000EOD@prodigy.net), August 15, 1999.

Do I hear a hint of panic in the above article? So NOW some analysts are starting to think about it ...

-- too little too late (but@panic.thiswaycomes), August 15, 1999.

Ray, I believe that Gary North has commented to the effect that much of the Y2K news regarding the U.S. -- such as the list of Y2K problems encountered during testing -- gets reported by USIA foreign countries, but gets virtually looked by the U.S. press in general. If this UPI article got high visibility in the U.S., I am sure that would wake up a lot of people.

-- King of Spain (madrid@aol.com), August 15, 1999.

Here's a list of Y2K links provided by the World Bank:

http://www.worldbank.org/infodev/y2k/y2klinks.htm

-- Linkmeister (link@librarian.edu), August 15, 1999.

Hi folks,

The World Bank article they are referring to was mentioned in some Yourdon threads last week. I listed the link to the actual article on the World Bank web site. Here it is again: http://www.worldbank.org/prospects/gcmonline/index.htm Scroll to the bottom of the URL for the link to the PDF file with the report.

[Delete Paragraph--Per Poster Request--Sysop]

-- Meg Moss (meg@giglobal.com), August 15, 1999.

Ray,

The incidents cited by the World Bank have been reported but, perhaps, not all together nor by as respected source as the World Bank Group.

Sincerely, Stan Faryna

P.S. If you would like to thank the World Bank Global Commodity Markets group for going out on the limb like this... or encourage them to continue to explore the ramifications of Y2K on global commodity markets, let them know with a brief email to Pllido@worldbank.org.

-- Stan Faryna (info@giglobal.com), August 15, 1999.

Good work again, Linkmeister.
"... we'll only know how to handle a crisis when it comes ... "
Does that sound like FOF? Have they done contingency planning?

-- aware by December (maybe@enough.articles), August 15, 1999.

KoS and Andy,

Something that has caught my eye recently is the World Bank payroll problem. The fact that they have told some of their employees to go out and get personal loans to tide them over till they get their problem fixed sure smells FISHY to me. Why they can't pay their employees based on estimated net pay each month is beyond me. Then make the adjustment if they ever get the system running again.

Ray

-- Ray (ray@totacc.com), August 15, 1999.

This one mentions food shortages. What will it take for the herd's squirrel instincts to kick in? Glad I already have everything tucked away. I won't be hungry or trampled if a stocking frenzy jams the stores.

-- acorns accounted for (hiding@out.watching), August 15, 1999.

How are those farmers going to hand-milk 120 cows twice a day? They'll have to bring the cows to the "warming centers." Forget about pasteurization.

-- moooo (whole@lotta.mooing), August 15, 1999.

Snip:

"In some cases, affected institutions may find it easier to rebuild than to replace production and distribution systems, adding yet unknown costs to trading of commodities, say London commodity traders."

Note they used the term "affected institutions" here instead of naming the industry sectors. I would imagine oil, gas and chemicals would be at the top of the list. This is the FIRST time I have seen this subject broached in the mainstream media.

Ray

-- Ray (ray@tottacc.com), August 15, 1999.

Ray, that is a good point! In fact, I have many times run into why-Y2K-will-be-no-biggie type articles that use the example "just have your payroll department issue checks for the amount of the last previous check, and once the computer problems get fixed, the difference can be applied". Like everything else about the complex and convoluted Y2K problem, probably easier said than done!!!

-- King of Spain (madrid@aol.com), August 15, 1999.

Andy,

I agree with your analysis but with a slightly different twist. It does appear that the "Powers That Be" are moving to a global currency system perhaps with the dollar, the yen and the Euro trading at or near parity. I haven't seen any info that any .gov plans to remonitize with a gold or silver or other tangible base value. Rather, I expect a move to a cashless society post-Y2K because "they" will explain that "an unrealistic demand for cash stretched normal liquidity so therefore everyone in every country will be issued an ID card which keeps their balances in multiple redundant databanks" or similar words to that effect. It also seems that "they" have manipulated gold prices to the point that gold can be purchased for less per ounce on the open market than it can be mined and smelted from the ground. I do not think this situation will last until 12/31/1999 but will unwind much sooner as the gold shorts are forced to cover their positions. As soon as gold moves up, I would expect stocks to go down. I would not be surprised by a 50% drop in the S&P 500 by February 2000.

Meg Moss,

I work for a company that supplies the steel industry, we are heavily dependent on imports of chrome ore from the Phillipines or S. Africa. Inventory levels are tight due to JIT and lead times are extending. Thanks for posting. Any other insight you might provide is much appreciated.

-- Bill P (porterwn@one.net), August 15, 1999.

King,

My employer is doing just what you suggest. We put SAP R3 in and found some of the less used modules do not work yet. One is consignment billing of customers. Our regular invoice at time of shipment works fine but the consignment does not. Our regular payroll works fine but our sales commision system does not. Commissions are calculated and paid quarterly. So far 1st and 2nd qtr have been estimates based on actual 1998 performance with a promise to rectify real soon. :-(

-- Y99? (cant@say.now), August 15, 1999.

Bill,

"I agree with your analysis but with a slightly different twist. It does appear that the "Powers That Be" are moving to a global currency system perhaps with the dollar, the yen and the Euro trading at or near parity. I haven't seen any info that any .gov plans to remonitize with a gold or silver or other tangible base value. Rather, I expect a move to a cashless society post-Y2K because "they" will explain that "an unrealistic demand for cash stretched normal liquidity so therefore everyone in every country will be issued an ID card which keeps their balances in multiple redundant databanks" or similar words to that effect..."

That's what I used to think, and certainly a cashless society is on the agenda with ID cards, a chip etc. - that's the only way they want it to go - stops money laundering, gives ultimate control to them, excludes the underclasses etc. etc.

Also agree about the three planned currencies, dollar, yen and euro. What's got me thinking is the looting of gold, and the amount of physical silver that Buffet has accumulated - guys like hime and his cronies are in the know for sure. Maybe we should ride piggyback :)

Difficult to know what to do, how to protect one's wealth, how to position for this "event" - logic dictates things will unwind soon, pre-rollover (should have happened already sans all these bailouts), yet it would be superb propaganda to deceive the masses that the damned computers caused the financial collapse, the gold stealing having been conveniently forgotten amidst the carnage,...

It's a mystery, within an enigma etc. etc. :)

-- Andy (2000EOD@prodigy.net), August 16, 1999.

Y2K Failures

-- Gayla (privacy@please.com), August 16, 1999.

Many famers and ranchers in the United States have been convinced that y2k is a hoax. Few, that I am aware of, understand the embedded systems problem and fewer have even evaluated their business for y2k exposure. They truly believe that it doesn't apply to them.

Many have developed an odd sort of anger about the issue of y2k. I was talking to an ag loan officer who is a tenant in my office. He said that earlier in the year, they had tried to ask for y2k compliance assurances from ag applicants. People were incensed that they were being asked and many went to other lenders because of it. The lender no longer asks. U.S. ag leadership has been alarmingly slow to address the issue and guide agriculturalists through the process. Why would farmers and ranchers take y2k seriously if their leadership doesn't?

-- marsh (armstrng@sisqtel.net), August 16, 1999.