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How to Profit From Rising Food Prices


Bolster your portfolio while your grocery bill rises.

Ralph Barr of Sandusky, Ohio, was arrested for assault after allegedly spitting in the face of Monte Erwin, a Kroger (KR) store manager, head-butting him, and punching him six times in the face, breaking his glasses in the process.

Erwin, 44, hadn't been talking trash to Barr, 61. He wasn't sleeping with his wife. He didn't kick him out of the express line for trying to sneak 11 items in instead of 10.

The spark that lit the gasoline was… are you ready for it?

The price of crab cakes.

It's official: Food is expensive. This week, the USDA released a report that forecasts grocery-store and restaurant prices to increase 2.5% to 3.5% this year.

"Retail food price inflation in 2010 will rebound from the 2009 level toward a moderate level, slightly above the long-term historical average," the USDA said. "At supermarkets, meat, poultry, and fish prices are forecast to be higher this year, up 1.5% to 2.5%, compared to a 0.5% gain in 2009."

Looking forward, read What Will Food Cost in 2015?

While Ryan Krueger, founder and portfolio manager with Houston money management firm Curbstone Partners, who has a keen focus on the agriculture sector, says they're not "riot-causing levels", he's "never seen inventories this tight" and expects wholesale prices to continue to rise.

It's one of the factors that has contributed to declining same-store sales at US supermarket chains like Supervalu (SVU), Safeway (SWY), and Kroger.

MarketWatch quoted a research note written by Janney Montgomery food analyst Jonathan Feeney:

"While food retailers continue to experience food retail price deflation, if the Food CPI stays at current levels, it will be inflationary by July 2010."

Krueger points to major pork and beef producers Smithfield Foods (SFD) and Tyson Foods (TSN) as two examples of companies having a tough time in the current economy, cutting production to shore up their balance sheets as consumers spend less and less.

"They're having an awful time," he says. "With US demand this slow, entire herds are being liquidated because they've become unaffordable. Their costs are not going down, and while sales aren't necessarily plunging, per se, they are certainly sluggish, to say the least."

Krueger explains that food shortages and subsequent price increases are due to global circumstances -- not just a weak US economy.
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