Cart (0)
business newsFood Prices Set New All-Time High -- Again
By
Ryan Krueger
May 06, 2011 2:20 pm
In 2008, an ethanol craze and speculators were supposedly to blame. It's something different this time, and it's not the inevitable supply shock due to Mother Nature.
PRINT
My oldest daughter had to frantically help me find the cooking oil last week for my “happy face pancakes” so her younger sister could poke the chocolate chip eyes out instead of mine if she had to wait any longer. I have been trying to find a lot of ingredients over the past month after taking over as chef when their littlest sister was born. My, oh my, how things have changed in the kitchen since my 9-year-old sous chef was born.
The index above is comprised of 55 agricultural commodity prices. Unlike most asset prices whose recovery is measured in rallies from recent lows, food prices have just set a new all-time record high, again. In 2008, an ethanol craze and speculators (like me) were supposedly to blame. It is something different this time and it is not the inevitable supply shock due to Mother Nature, which we are actually overdue for. The best clue can be found in that elusive cooking oil, believe it or not.
Thankfully I study prices for a living, so my biggest kitchen surprise has been dealing with my wait staff and unruly customers. For the rest of the world, however, finding that cooking oil has not been easy. Consider this startling fact: The combined inventory of all nine edible oils is down to 23 days worth of demand, the lowest since 1974. Demand is growing another 6% this year to reach more than 146 million tons. Production is growing only 4% to not meet that rise.
“Meat’s not meat until it’s in the pan.” A business man once shared with me this philosophy at dinner while discussing a deal he had in the works, but that he did not want to take for granted. The steak in front of him, he may have. Most diets around the world are just now starting to climb the ladder toward high-quality protein.
Meanwhile, market pundits are divided between camps beating the drums of hyperinflation and others that believe in more asset price deflation. I see something more specific and unmistakably clear in pans around the world. Over the past four decades while global population has increased 85%, demand for cooking oil is up more than 900%. Food prices rising together in the chart above actually underestimates the planet-shaking change underway. It’s not just that more people are eating more food; it’s what they are eating. Rising standards of living can be seen in what I call "proteinflation."
The ripple effects are marbled quite nicely throughout the agricultural industry in the stock market. If you consider that the average acre of Iowa farmland increased in value 15.9% in 2010 to $5,064/acre you will understand why the companies providing equipment and services to farmers with fatter wallets are doing so well. If you then consider that in the year 2000 that same acre was worth $1,857 you will understand why we are inside a dramatic secular shift towards increased spending for years to come from an industry that had been historically under-invested in by farmers like my grandfather who could not afford it for several decades. As you have noticed, cycles tend to cycle.
For all the color commentary you may need on the shift underway across the board for hard asset industries like agriculture, you need look no further than the direction and relationship of these two simple lines below.
Anything we see to change our outlook? Yes, glad you asked. Our country’s head paper salesman has picked up the pace again on increasing the supply of paper assets which should chase a finite supply of hard assets with even higher bids paid for with cheaper and cheaper US dollar bills.
Updated Stock Market Neighborhood Report
Each quarter my firm dumps all 10 S&P sectors through our quantitative sausage grinder and then ranks each based on a variety of 12 variables centered around: 1) Momentum, 2) Fundamentals, 3) Revisions & Surprises, and 4) Crowd Sentiment.
Materials (XLB) and Industrials (XLI) ranked No. 1 and No. 2 overall for this second quarter. Consider a few notes from this detailed study we conduct on just how under-appreciated all of the above data is on Wall Street. Despite our unmistakable position inside a secular bull market in hard assets, the materials sector is still about 33% below its own 20-year average weighting in the S&P 1500. Materials and industrials are also the top-two sectors most heavily bet against, using our open put/call measurement. Judging by the amount of Wall Street analysts that are covering stocks in all 10 sectors, the bottom two are materials and industrials. The only thing better than a good idea is an uncrowded good idea.
The index above is comprised of 55 agricultural commodity prices. Unlike most asset prices whose recovery is measured in rallies from recent lows, food prices have just set a new all-time record high, again. In 2008, an ethanol craze and speculators (like me) were supposedly to blame. It is something different this time and it is not the inevitable supply shock due to Mother Nature, which we are actually overdue for. The best clue can be found in that elusive cooking oil, believe it or not.
Thankfully I study prices for a living, so my biggest kitchen surprise has been dealing with my wait staff and unruly customers. For the rest of the world, however, finding that cooking oil has not been easy. Consider this startling fact: The combined inventory of all nine edible oils is down to 23 days worth of demand, the lowest since 1974. Demand is growing another 6% this year to reach more than 146 million tons. Production is growing only 4% to not meet that rise.
“Meat’s not meat until it’s in the pan.” A business man once shared with me this philosophy at dinner while discussing a deal he had in the works, but that he did not want to take for granted. The steak in front of him, he may have. Most diets around the world are just now starting to climb the ladder toward high-quality protein.
Meanwhile, market pundits are divided between camps beating the drums of hyperinflation and others that believe in more asset price deflation. I see something more specific and unmistakably clear in pans around the world. Over the past four decades while global population has increased 85%, demand for cooking oil is up more than 900%. Food prices rising together in the chart above actually underestimates the planet-shaking change underway. It’s not just that more people are eating more food; it’s what they are eating. Rising standards of living can be seen in what I call "proteinflation."
The ripple effects are marbled quite nicely throughout the agricultural industry in the stock market. If you consider that the average acre of Iowa farmland increased in value 15.9% in 2010 to $5,064/acre you will understand why the companies providing equipment and services to farmers with fatter wallets are doing so well. If you then consider that in the year 2000 that same acre was worth $1,857 you will understand why we are inside a dramatic secular shift towards increased spending for years to come from an industry that had been historically under-invested in by farmers like my grandfather who could not afford it for several decades. As you have noticed, cycles tend to cycle.
For all the color commentary you may need on the shift underway across the board for hard asset industries like agriculture, you need look no further than the direction and relationship of these two simple lines below.
Anything we see to change our outlook? Yes, glad you asked. Our country’s head paper salesman has picked up the pace again on increasing the supply of paper assets which should chase a finite supply of hard assets with even higher bids paid for with cheaper and cheaper US dollar bills.
Updated Stock Market Neighborhood Report
Each quarter my firm dumps all 10 S&P sectors through our quantitative sausage grinder and then ranks each based on a variety of 12 variables centered around: 1) Momentum, 2) Fundamentals, 3) Revisions & Surprises, and 4) Crowd Sentiment.
Materials (XLB) and Industrials (XLI) ranked No. 1 and No. 2 overall for this second quarter. Consider a few notes from this detailed study we conduct on just how under-appreciated all of the above data is on Wall Street. Despite our unmistakable position inside a secular bull market in hard assets, the materials sector is still about 33% below its own 20-year average weighting in the S&P 1500. Materials and industrials are also the top-two sectors most heavily bet against, using our open put/call measurement. Judging by the amount of Wall Street analysts that are covering stocks in all 10 sectors, the bottom two are materials and industrials. The only thing better than a good idea is an uncrowded good idea.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
