Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
How to Capitalise on the Robots - 20th June 24
Bitcoin, Gold, and Copper Paint a Coherent Picture - 20th June 24
Why a Dow Stock Market Peak Will Boost Silver - 20th June 24
QI Group: Leading With Integrity and Impactful Initiatives - 20th June 24
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24
Bitcoin Trend Forecast, Crypto's Exit Strategy - 31st May 24
Zimbabwe Officials Already Looking to Inflate New Gold-Backed Currency - 31st May 24
India Silver Imports Have Already Topped 2023 Total - 31st May 24
Gold Has Done Its Job – Isn’t That Enough? - 31st May 24
Gold Stocks Catching Up - 31st May 24
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

What the Texas State Fair Taught Me About Inflation

Commodities / Inflation Oct 12, 2010 - 11:48 AM GMT

By: Jared_Levy

Commodities

Best Financial Markets Analysis ArticleI spent my Saturday wandering around the good old Texas State Fair. I walked though the livestock area and stables full of animals of all kinds from all over Texas, and right before exiting I turned to my right to see "Millie" the Brown Swiss cow staring right at me.

My first thought, while staring back into the eyes of this cow, was inflation. Most don't typically associate cows with inflation, I know. But here's what that Brown Swiss cow and inflation have to do with one another...


Inflation Is Knocking
Sara and I have discussed printing U.S. dollars, monetary policy, budget deficits, gold prices, silver prices, precious metals and even crude oil as having direct correlations with impending inflation, but we must not forget about the most important commodity of them all... FOOD!

Without getting into gross detail about the world's eating habits, I wanted to offer some simple examples to help you get a grasp on the importance and consumption of food and, more importantly, the prices of food when inflation comes to roost.

Consumption
According to the USDA, the average American eats about 2,000 calories a day, which breaks down to about 100 grams of protein, 300 grams of carbs, 130 grams of sugar, 15 grams of fiber and about 95 grams of fat.

The U.S. Department of Agriculture estimates that the average person in the United States eats 0.5 lbs of meat, 1.6 lbs of dairy products, 0.2 lbs of fats and oils, 0.8 lbs of fruits, 0.7 lbs of vegetables, 0.5 lbs of grains, and 0.4 lbs of sugars per day for a total of 4.7 lbs of food per day. (Remember there are many non-edible parts of proteins, grains and veggies.)

All told that is over 1,700 pounds of food a year per person (this obviously varies dependent upon age and sex). On average, that can be thought of as 183 pounds of meat/poultry, 584 pounds of milk and its derivatives, 183 pounds of bread, 73 pounds of oils, 146 pounds of sugars, 256 pounds of vegetables and 292 pounds of fruit per year.

Changing Eating Habits
Americans are certainly unique in the way that we eat, but the world's tastes and consumption are changing as well. If you look at the chart below from the Food and Agriculture Organization of the United Nations, you can see demand increasing and more and more countries consuming proteins (China), which puts demand not only on meat prices, but on grains to feed the livestock.

Global and Regional Per Capita Food Consumption (Kcal Per Capita Per Day)


Region

1964 - 1966

1974 - 1976

1984 - 1986

1997 - 1999

2015

2030

World

2358

2435

2655

2803

2940

3050

Developing Countries

2054

2152

2450

2681

2850

2980

Near East and North Africa

2290

2591

2953

3006

3090

3170

Sub-Saharan Africa

2058

2079

2057

2195

2360

2540

Latin America and the Caribbean

2393

2546

2689

2824

2980

3140

East Asia

1957

2105

2559

2921

3060

3190

South Asia

2017

1986

2205

2403

2700

2900

Industrialized Countries

2947

3065

3206

3380

3440

3500

Transition Countries

3222

3385

3379

2906

3060

3180

The Raw Cost of Food

Looking at average prices, based on a four-person household, of several food products for my estimates, most data is taken from USDA, futures prices and retail food websites. I am using a blend of prices, based on an average of different food products in each group. The point of the data here is to show the potential increase in costs for the average family. These figures do NOT include dining out or premium items.

Food

Lbs Per Year

Average Cost Per lb

Total Annual Costs

Meat/Poultry

732

3.23

$2,364.36

Milk Products

2,336

1.20

$2,803.20

Bread Products

732

4.50

$3,294

Fruit products

1,168

1.10

$1,284.80

Sugar products

584

3.00

$1,752

Oil products

292

.58

$169.36

Veggie Products

256

1.20

$307.20

Annual Food Expenditures for a 4-Person Family (Conservative Estimate): $11,974.92
(Remember that we are now in an economic downturn)

I found that about 24% of the average household's income is spent on basic food needs. For most of us, that number is probably higher because many of us dine out and pay premiums for prepared foods. But here's what we really need to think about: When food prices rise, that cuts into our savings and other spending... and we need to protect our savings from getting eaten up by food prices!!

A 10% increase in the cost of food would mean another $1,200 jump in annual costs ($100 per month) on average, per year in this case. Food is not something we will stop spending money on -- IT'S A NECESSITY OF LIFE.

By the way, corn, wheat, sugar and other commodities are all up way over 10% in the past couple months.

Inflation here in the U.S. or even the precursors to it can drive commodity prices higher, and since many commodities are denominated in U.S. dollars, that means a weak dollar = higher commodity prices.

The International Fund for Agriculture Development (IFAD) estimates that:

  • The world population is expected to grow by 50% by 2050.
  • Food production will need to rise by 50% by 2030 to meet growing demand.
  • There are about 500 million small farms in developing countries, supporting almost 2 billion people -- one-third of humanity.
  • From 2007 to 2008, the number of undernourished people in the world rose by 40 million to a total of 963 million.
  • There is a food crisis out there for many people around the world.

What Can You Do to Protect Yourself?
Food demand is here to stay and with inflation, food costs will be on the rise. Most likely you will see these pricing pressures on the goods that you buy at the market each day.

Of course, one way to hedge against this is to buy precious metals like gold and silver. And you've probably read past issues of Smart Investing Daily in which Sara and I have recommended certain precious metals ETFs and other investments. As long as inflation remains a threat, we'll continue to offer you precious metal plays.

For now, here's another way you can take advantage of rising food prices. You can purchase the Agribusiness ETF (MOO:NYSE), which holds companies such as John Deere (DE:NYSE), Mosaic (MOS:NYSE), Potash Corp (POT:NYSE) and others.

Another way for non-futures traders to invest in agriculture and commodities is the PowerShares Deutsche Bank DB Agriculture Fund (DBA:NYSE). The DBA holds futures contracts in corn, soybeans, wheat, sugar, cocoa, cattle and more.

The world has to eat and as world populations grow and societies like China evolve to eat more proteins, demand will continue to increase. Couple this with our country's printing press stuck in the "on" position, and you have a recipe for continued strength in commodity prices!

Don't forget to follow us on Facebook and Twitter for the latest in financial market news, investment commentary and exclusive special promotions.

Source : http://www.taipanpublishinggroup.com/tpg/smart-investing-daily/smart-investing-101210.html

By Jared Levy
http://www.taipanpublishinggroup.com/

Jared Levy is Co-Editor of Smart Investing Daily, a free e-letter dedicated to guiding investors through the world of finance in order to make smart investing decisions. His passion is teaching the public how to successfully trade and invest while keeping risk low.

Jared has spent the past 15 years of his career in the finance and options industry, working as a retail money manager, a floor specialist for Fortune 1000 companies, and most recently a senior derivatives strategist. He was one of the Philadelphia Stock Exchange's youngest-ever members to become a market maker on three major U.S. exchanges.

He has been featured in several industry publications and won an Emmy for his daily video "Trader Cast." Jared serves as a CNBC Fast Money contributor and has appeared on Bloomberg, Fox Business, CNN Radio, Wall Street Journal radio and is regularly quoted by Reuters, The Wall Street Journal and Yahoo! Finance, among other publications.

Copyright © 2010, Taipan Publishing Group


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in