The prices of some basics, including wheat and rice, have risen by more than a quarter and are near historic highs. As your budget tightens, these stocks benefit.
Recent headlines tell the story of a global spike in food prices. In the last few weeks we've seen riots in Algeria sparked by the cost of sugar and wheat. Mexico's government bought corn futures to hedge against rising tortilla prices. Indian Prime Minister Manmohan Singh was forced to arrange onion imports from traditional enemy Pakistan. In a visit to a supermarket in Inner Mongolia, Chinese Premier Wen Jiabao promised shoppers that the government will control food price inflation now running at better than 11% annually.
Forecasts see food prices rising through 2011
What the world is seeing isn't an anomaly, in my opinion. The peaks of 2008 and 2010 aren't unusual events caused by a coincidence of bad weather and terrible (but common) government decisions to hoard key grains behind export bans. Those peaks are indeed extreme, but the long-term trend in food prices is upward. It's the dip from the highs of 2008, as global consumers tightened their belts in response to the Great Recession, that's actually the anomaly.Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 300, 213, {"configCsid": "MSNmoney", "configName": "player-money-articles-16x9", "player.vcq": "videoByUuids.aspx?uuids=d3d7bc58-2c80-44b2-867e-7f9ff4778579,1267eb15-e078-4ce7-b555-556fb9d173d6,a8eb0600-8d67-49af-ac82-e646f5470d1f,1b086d55-7e19-4020-ad1c-e720f92d2f13,51a6039a-1dfb-47c7-ac7d-630defd35b94", "player.fr": "iv2_en-us_money_article_16x9-xxx-xxx"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=d3d7bc58-2c80-44b2-867e-7f9ff4778579,1267eb15-e078-4ce7-b555-556fb9d173d6,a8eb0600-8d67-49af-ac82-e646f5470d1f,1b086d55-7e19-4020-ad1c-e720f92d2f13,51a6039a-1dfb-47c7-ac7d-630defd35b94;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4'); Absent a return to global recession, I think the upward trend in food prices is going to continue. The forces pushing prices higher are simple and massive, and the policy responses from governments that might temper the trend are too limited. If you're a long-term investor, the rise in food prices is one of the safest trends you can invest in. A good food stock is hard to find It's also one of the most frustrating trends, because of the difficulties in finding good stocks positioned to take advantage of rising food prices. Eliminate those that don't trade publicly or in the United States, and the number gets even smaller. For example, one of my favorites is Marfrig Alimentos, a Brazilian processor of beef, pork, chicken and lamb, as well as frozen vegetables, prepared meals and pasta. But while volumes are above a million shares a day in Brazil, the stock (MRFG3.BZ) trades hardly at all on the U.S. over-the-counter market.
But I think you can expand the universe -- a bit anyway -- if you go back to the root causes of rising food prices.
Demand for staple grains, for example, is forecast to rise by 2% in 2011. Where's that demand coming from? A larger global population is certainly contributing, but rising global incomes also play a role. As incomes rise, even modestly, people clamor to eat more meat. Turning grain into pork or chicken or (corn-fed) beef is a very inefficient way to produce protein. And, at least in the United States, there's further competition for grain for energy production. The International Monetary Fund estimates that 70% of the increase in corn prices in 2008 was due to demand from ethanol production.
The solution would seem simple: Grow more food. But increasing the food supply isn't easy. First, the world isn't producing any additional good farmland. In fact, we're losing farm acres every year to causes that range from desertification to urban development. Second, while increasing the productivity of much of the world's farmland is certainly possible, we've got a mismatch in much of the world between the cost of the inputs that would raise productivity -- better seeds, more fertilizer, better irrigation -- and the ability of poor farmers to pay for them. Third, many of the cheapest and easiest methods for raising productivity have hit real limits, given the absence of investment capital. For example, cheap forms of irrigation have depleted the water table in many farm areas of India, while at the same time adding near-toxic levels of salts from fertilizers to the soil. That situation is certainly fixable, but deeper wells, drip irrigation and soil restoration all require investments beyond the capacity of most of the area's farmers.
Continued: 'Global weirding' isn't helping mattersMore from MSN Money and Moneyshow.com
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An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8'); 2CommentsNewestOldestBestWorstControversialLostOnEarth49 minutes agoWell said Lynn X! And Jim, you are still clueless as always! 0 0ReportSpamLynn X4 hours agoJim Jubak: Absent a return to global recession, I think the upward trend in food prices is going to continue. The forces pushing prices higher are simple and massive, and the policy responses from governments that might temper the trend are too limited. The FED doesn't count food or fuel when figuring out the inflation rate. I guess they think we don't need either food or fuel. This ridiculous! 0 0ReportSpamAdd a commentReportPlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. 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Demand for staple grains, for example, is forecast to rise by 2% in 2011. Where's that demand coming from? A larger global population is certainly contributing, but rising global incomes also play a role. As incomes rise, even modestly, people clamor to eat more meat. Turning grain into pork or chicken or (corn-fed) beef is a very inefficient way to produce protein. And, at least in the United States, there's further competition for grain for energy production. The International Monetary Fund estimates that 70% of the increase in corn prices in 2008 was due to demand from ethanol production.
The solution would seem simple: Grow more food. But increasing the food supply isn't easy. First, the world isn't producing any additional good farmland. In fact, we're losing farm acres every year to causes that range from desertification to urban development. Second, while increasing the productivity of much of the world's farmland is certainly possible, we've got a mismatch in much of the world between the cost of the inputs that would raise productivity -- better seeds, more fertilizer, better irrigation -- and the ability of poor farmers to pay for them. Third, many of the cheapest and easiest methods for raising productivity have hit real limits, given the absence of investment capital. For example, cheap forms of irrigation have depleted the water table in many farm areas of India, while at the same time adding near-toxic levels of salts from fertilizers to the soil. That situation is certainly fixable, but deeper wells, drip irrigation and soil restoration all require investments beyond the capacity of most of the area's farmers.
Continued: 'Global weirding' isn't helping mattersMore from MSN Money and Moneyshow.com
1 | 2 | next >
Check out Jim's top stocks for the next 12 months.
Read how to invest with Jubak's showcase portfolio.
Follow the long-term portfolio from Jim's book "The Jubak Picks."
See Jim's new portfolio to help navigate the treacherous interest-rate environment.
Read Full Article »