The 2010 U.S. Agflation Outlook

Brian Hicks

Written By Brian Hicks

Posted October 13, 2010

If you thought your $200 weekly grocery bill was bad, just wait. 

It’s about to jump 20% to 30% next month, as the Fed embraces another round of quantitative easing to combat global currency manipulation and devaluation.

But that very move could do more harm than good. It’s likely to create another food price bubble, similar to what we saw in 2007-2008.

Three years ago, wheat prices skyrocketed even as the consumption-to-stock ratio warranted falling prices… Bread was up to $1.32 at the time — a 32% rise in less than three years… The price of eggs rocketed 50%. 

Overall, food prices rose more than 5% and the average family’s grocery bill rang in $80 higher.

And we’re going to see it happen again, as historically high corn prices drive the cost of beef to twenty-five-year highs…

The sad fact is, this situation has no chance of improvement if the Fed floods the global economy with more dollars.

What the move will do is further damage the U.S. economy

Apparently, we’re not paying enough for food, energy, or clothing…

It doesn’t matter that 20% of Americans are unemployed or under-employed.

It doesn’t matter that, since the Fed last spoke, gold and other commodities have spiked…

Crude oil has already soared some 27%. Wheat is up 84%. Sugar is up 55%. Soybeans are up some 24%. And corn just rocketed another 15% in two days — the biggest move in recent history, and a move that prompted some to warn of another food crisis.

The meat industry just warned of a game-changer in pricing and profitability; the cost and contraction of corn supplies could mean higher prices for beef, pork, and poultry that will be passed on to the consumer.

And even more excess cash is showing up in food prices…

The U.N. has reported that global meat prices are at a twenty-year high: Pork bellies (think bacon) are at a record $1.50 a pound; Australian lamb prices are at $5.50 a kilo — the highest price since 1973.

In August, a JPMorgan analyst who tracks food prices reported that a standard basket of Wal-Mart food in Virginia increased 5.8% over last year. In India, food prices were up 14.05% in the second quarter.

This is a big deal

Of course, extreme global weather patterns are sending food prices up, as well.

Droughts in Australia, flooding waters in Pakistan, heat waves, cold snaps, earthquakes, and natural disasters all play a part in the harvest.

But it’s all too easy to blame rising food prices on Mother Nature…

The truth is that — if it weren’t for our loose monetary policy these commodities would not have increased as quickly as they have.

All the Fed has to do is initiate another round of QE and those prices move even higher, and the effects will be disastrous. We’re talking food crisis and riots; we’re talking higher retail prices, which would hit consumer income.

We’re talking about global chaos.

And for what? To save a fragile U.S. economy that’s on the brink of collapse anyway?

When the Fed eased in 2007, oil and food prices exploded — killing the global economy with sky-high unemployment.

(Two years after 2008’s easing, and we still haven’t seen the promised improvement in unemployment.)

What will be different if the Fed initiates QE2 in November — besides rampant moves in energy and food inflation and a depressed economy?


So how do you profit from the coming chaos?

Buy shares of fertilizer companies and sellers of farm equipment. Sell food company stocks.

I’m buying the Market Vectors Agribusiness ETF (MOO) up to $50. It holds Monsanto (MON) and Potash (POT).

And I’m looking to buy puts (or short) food company stocks like Tyson (TSN), which could see a repeat of the 2008 plunge.

Tyson chart 2010

Another way to profit from a weaker dollar: Oil

As the price of oil spikes on a weaker dollar, we’re likely to see attention shifted to domestic oil companies looking to set up shop in what could be the only safe, stable place left to drill for oil.

Under-the-radar companies are developing drilling techniques behind closed doors so that they can successfully extract what the World Energy Council has recently been referring to as the largest oil deposits on the planet.

And I’ve got all the details on these oil gems in my latest report.

Stay Ahead of the Curve,

Ian L. Cooper
Energy and Capital

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