February 7, 2008
Grain prices hit us directly in the pocketbook. So does oil and natural gas. As these prices go up, they cause everything that we use and eat to go up with it, and that propels inflation upward. As inflation continues to move higher, the Fed ends up in an untenable position of having to cut interest rates to keep us out of a recession while stoking the inflation fires which will eventually mean the Fed will have to raise rates again to knock down inflation. Whew....that was a mouthful.
Well a couple of interesting clips below.
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U.S. wheat prices surged to more than $10 a bushel on Chicago futures exchanges Tuesday, while hitting a record on the smaller Minneapolis Grain Exchange, as Canada reported tight stockpiles and millers scrambled for supply.
Overall, wheat prices have doubled since last June at the Chicago Mercantile Exchange, which owns the Chicago Board of Trade. Prices have been pushed higher by surging world demand and bad weather in some major producing nations.
The U.S. Department of Agriculture expects the U.S. wheat surplus this year to be the smallest in 60 years. Despite higher prices, U.S. plantings of winter wheat rose only about 4% from last year. Farmers had been expected to increase plantings by far more.
Prices for corn, soybeans and other grains have also surged in recent months. That helped push U.S. food inflation up to 4.9% in 2007 from 2.1% in 2006. The impact has been far greater in less-affluent nations, where people spend more of their income on food. |
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GET READY TO PAY EVEN MORE FOR FOOD...
The grain markets are starting 2008 the same way they ended 2007... with a richer Asia putting huge strains on thin supplies.
Wheat dominates this week's headlines, reaching all-time highs around $10 a bushel on Tuesday. This recent increase comes on the back of a 65% gain in 2007 and soaring corn, soybean, rice, and oat prices.
Like expensive crude oil pushes up prices at the gas station, higher crop prices lead to inflation in the checkout aisle. In its latest report, the Bureau of Labor Statistics says grocery store food prices increased 5.6% in 2007. Bread, beef, milk, cereal – you name it. If it's edible, expect to pay even more for it in 2008.
For a picture of the bull market in grains, we present the PowerShares Agriculture ETF. It's a one-click way to place sugar, corn, soybeans, and wheat into your brokerage account... And it's in an uptrend if we've ever seen one.
– Tom Dyson
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