Healthy soil and sustainable growing

["Tradingpost" <tradingpost@lobo.net>]

Load Up the Pantry
April 21, 2008 6:47 p.m.

I don't want to alarm anybody, but maybe it's time for Americans to start 
stockpiling food. No, this is not a drill.
http://online.wsj.com/article/SB120881517227532621.html

You've seen the TV footage of food riots in parts of the developing world. 
Yes, they're a long way away from the U.S. But most foodstuffs operate in a 
global market. When the cost of wheat soars in Asia, it will do the same here.

Reality: Food prices are already rising here much faster than the returns you 
are likely to get from keeping your money in a bank or money-market fund. And 
there are very good reasons to believe prices on the shelves are about to 
start rising a lot faster.

"Load up the pantry," says Manu Daftary, one of Wall Street's top investors 
and the manager of the Quaker Strategic Growth mutual fund. "I think prices 
are going higher. People are too complacent. They think it isn't going to 
happen here. But I don't know how the food companies can absorb higher 
costs." (Full disclosure: I am an investor in Quaker Strategic)

Stocking up on food may not replace your long-term investments, but it may 
make a sensible home for some of your shorter-term cash. Do the math. If you 
keep your standby cash in a money-market fund you'll be lucky to get a 2.5% 
interest rate. Even the best one-year certificate of deposit you can find is 
only going to pay you about 4.1%, according to Bankrate.com. And those yields 
are before tax.

Meanwhile the most recent government data shows food inflation for the 
average American household is now running at 4.5% a year.

And some prices are rising even more quickly. The latest data show cereal 
prices rising by more than 8% a year. Both flour and rice are up more than 
13%. Milk, cheese, bananas and even peanut butter: They're all up by more 
than 10%. Eggs have rocketed up 30% in a year. Ground beef prices are up 4.8% 
and chicken by 5.4%.

These are trends that have been in place for some time.

And if you are hoping they will pass, here's the bad news: They may actually 
accelerate.

The reason? The prices of many underlying raw materials have risen much more 
quickly still. Wheat prices, for example, have roughly tripled in the past 
three years.

Sooner or later, the food companies are going to have to pass those costs on. 
Kraft saw its raw material costs soar by about $1.25 billion last year, 
squeezing profit margins. The company recently warned that higher prices are 
here to stay. Last month the chief executive of General Mills, Kendall 
Powell, made a similar point.

The main reason for rising prices, of course, is the surge in demand from 
China and India. Hundreds of millions of people are joining the middle class 
each year, and that means they want to eat more and better food.

A secondary reason has been the growing demand for ethanol as a fuel 
additive. That's soaking up some of the corn supply.

You can't easily stock up on perishables like eggs or milk. But other 
products will keep. Among them: Dried pasta, rice, cereals, and cans of 
everything from tuna fish to fruit and vegetables. The kicker: You should 
also save money by buying them in bulk.

If this seems a stretch, ponder this: The emerging bull market in 
agricultural products is following in the footsteps of oil. A few years ago, 
many Americans hoped $2 gas was a temporary spike. Now it's the rosy memory 
of a bygone age.

The good news is that it's easier to store Cap'n Crunch or cans of Starkist 
in your home than it is to store lots of gasoline. Safer, too.