The Daily Commodities » Grains

Will Food Prices Continue to Rise in 2011?

Daily Reckoning.com — Thu, 06 Jan 2011 02:39:52 +0000

01/05/11 Baltimore, Maryland – “Food inflation will become America’s top crisis,” in 2011 reads one of the top 10 forecasts issued by the National Inflation Association (NIA) this morning.

“Americans can cut back on energy use,” the NIA surmises, “by moving into a smaller home and carpooling to work. They can cut back on entertainment, travel and other discretionary spending.

“However, Americans can never stop spending money on food.

“The days of cheap food in America are coming to an end,” the forecast continues. “The recent unprecedented rise that we have seen in agricultural commodity prices is showing no signs of letting up.”

Indeed. You’ve already seen sugar futures at a new 30-year high. Coffee futures reached a new 13-year high last week. Orange juice, corn, soybeans and palm oil have all stretched to near three-year highs in the past week or so.

Last month, global food prices surpassed their mid-2008 records, according to a report out this morning from the United Nations Food and Agriculture Organization (FAO).

The FAO’s food price index clocked in at 214.7 in December – up 4.2% in just a month, and breaking the previous record of 213.5 in June 2008.

“It will be foolish to assume this is the peak,” says FAO senior economist Abdolreza Abbassian. He calls the situation “alarming,” but dutiful bureaucrat that he is, he won’t call it a “crisis.”

Heck, even the Super Big Gulp ain’t what it used to be:

Now with 9% less!

7-Eleven has surreptitiously shrunk its famous beverage container from 44 ounces to 40. Seems people started noticing it last summer…but only this week did the lid get blown off (so to speak) with a column in the Austin American-Statesman.

An alert reader compared the Super Big Gulp with a true 44-ounce container from a competitor…and it came up four ounces short. 7-Eleven confirmed it did make the change. But pressed for an explanation, a hapless PR flack could merely say, “We don’t have announcements; we just have information, so I’m not sure if we ran an announcement or not.”

“This is called short sizing,” says Resource Trader Alert editor Alan Knuckman, who has almost single-handedly propped up 7-Eleven’s Big Gulp business in recent years. “And it could have come from two different commodity-related angles…

“First, maybe because corn prices have rallied so much in the past 12 months, this is indicative of a rise in the price of corn syrup.

“Or second, maybe – since the cost of the cup is worth more than the soda inside – this was an energy saving technique in the face of higher energy prices. Either way, they’re clearly shrinking the size of a beverage to increase margins.

“But!” Alan continues. “This may not be the only place we’ll see a change. If 7-Eleven is REALLY watching their commodity prices closely, they’ll soon realize that the price of coffee has nearly doubled since last year.

“The best way to make this whole short sizing debacle a nonissue” according to Alan, “is to simply profit from the same forces that are shrinking our servings. In 2011, as always, it will all come back to commodities!”

Addison Wiggin
for The Daily Reckoning

Commodity BULL market…April Fools

Matthew Bradbard — Thu, 01 Apr 2010 09:58:24 +0000

Matthew Bradbard’s Daily Update…..

This is not entirely true but metals and energies certainly fit the bill. May Crude advanced again today briefly peaking its head above $85/barrel. If momentum gains and the dollar breaks down we could be looking at $90 in the coming weeks; no this is not an April fool’s joke. Crude oil has gained over 20% since the first week of February and it looks like the bulls remain firmly in control.

Bullish engulfing candle in natural gas on good volumes carries natural gas prices back over $4. As we’ve voiced we think the upward move could start on short covering and this may be the 1st inning. Wait for confirmation early next week. We will be looking to move on July options for clients if a bottom is confirmed.

Picking a top is a dangerous and sometimes expensive game as clients and readers know in the indices of late. On a disappointing jobs number tomorrow look to gain bearish exposure. Our favored play for clients remains June ES puts.

Impressive action in sugar today as a mid-day reversal puts prices back in the green, gaining over 2% today. According to some informed floor traders we spoke to there appears to be large buying in out of the money July and October sugar calls; we will potentially be moving next week in that direction…stay tuned.

Based on the close today we suggested taking off all shorts in cotton; depending on your entry/exit it should we a small loss or a small profit.

The weather over the weekend and if farmers in the Mid-west can get into their fields will set the tone on grains next week. We will be advising to exit May shorts once we feel a bottom has been established in corn. Fresh entries should be looking to buy December corn when a bottom is in which we feel is imminent. The KCBOT/CBOT wheat spread continues to move in the right direction; when KCBOT trades at a premium start looking for an exit door.

Aided by dollar weakness and positive fundamentals out of Europe and Asia metals traded to fresh highs. June gold finished at its highest level in 2 weeks back above the 100 day MA. Use $1115 as support with $1145 as resistance. May silver hit $18 for the first time since late January. We expected this and higher levels in 2010 but we anticipated a correction prior to. The only exposure clients have are July $2 call spreads so we welcome a move higher but we would prefer to see a probe lower to get exposure with futures. The most recent move from $16.50 to $18 in the last 2 weeks was certainly not expected from me. The June US dollar is below 81 closing just under the 20 day MA as it appears sellers are overpowering buyers.

Continue to trade European currencies inversely depending on your viewpoint as I am content on the sidelines until we get a clearer picture. The only constant remains weakness in the Yen; losing 3% in the last 8 days. Continue to sell rallies that are capped at 1.08.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

Marc Faber on FinancialSense Newshour

Jordan Roy-Byrne, CMT — Fri, 26 Feb 2010 09:37:12 +0000

Marc Faber was on Financial Sense Newshour for about 38 minutes. He discussed virtually everything including plenty of discussion on commodities. Well worth your time as Faber as a brilliant and honest analyst.

Ag-Related Video Clips

Jordan Roy-Byrne, CMT — Sat, 30 Jan 2010 08:11:16 +0000

CNBC Europe: Will Food Shortages Occur?

How Heavy Rains in California are Affecting the State’s Ag Sector

CNBC Asia: Ag Commodities Bullish Long-Term

Beacon Asset Managers: Grains = 2010 Preferred Commodity

Jordan Roy-Byrne, CMT — Thu, 14 Jan 2010 06:18:42 +0000

Beacon points out that the Ags lagged in 2009 yet have been basing rather than breaking down. They also note that sentiment, per Ned Davis Research, is an extreme pessimism territory. I assume that is proprietary because I haven’t seen that anywhere else.

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