Can you guess how many hungry people there are on this planet? Well, this year for the first time the number will be about 1 billion, roughly 1/6 of the world's population. Increasingly, this will put a strain on the food supply chain.

The years 1997-2007 saw a steady rise in agricultural commodity prices with a sharp spike last year. This trend is likely to continue over the next 10 years with prices rising 10-30%.

The Food and Agriculture Organization (FAO) of the United nations is forecasting slightly lower prices this year due to the weakness in the general economy.

In the biggest flim flam ever foisted on the American people, the Commerce Department reported that the CPI rose only 0.1% in May. Now this number is ridiculous because this "core" rate excludes food and energy. If you have been gassing up your car lately, you know that gas is now pushing $3.00 per gallon.

Nevertheless, the government says "not to worry about inflation." Well if you look more closely you'll find that gas prices actually rose 3.5% in May with crude oil prices trading near $72.00 per barrel.

You might think that since consumer prices have tumbled by near record percentages that this might lead to lower food prices. But much of that consumer price decline is attributable to lower energy prices -- after all oil peaked at $147 a barrel in July only to fall 63.5% to $53.63 yesterday.

Why won't food prices follow oil down? Many food producers panicked as corn and wheat prices peaked this summer -- locking in long term supply contracts at top prices. For instance, corn, which usually trades at $2 or $3 a bushel, pealed at $8 a bushel in June.

Although prices have since dropped to $3.50 a bushel, some food manufacturers locked in prices for corn and other commodities in the spring and summer, fearing that prices could go even higher. The result is that producers will pass on those higher costs in the form of food prices going up 7% to 9% in 2009.

Farmers are paying more for supplies to grow their crops and they're passing those rising costs onto consumers. The Wall Street Journal reports that farmers paid 65% more for fertilizer in April 2008. Fuel, the second-fastest rising cost, is up 43%. And seed prices have risen 30%. But you can hedge your rising food costs by investing in companies that profit from rising fertilizer prices.

Farmers say too much market power is concentrated in the hands of a small group of companies in the U.S., Canada and Russia that dominate global production of potash and phosphate. Phosphate is up 174% from $365 last year to $1,000 a ton. The price of a ton of potash is up 204% from $230 to $700. Thanks to a rise in natural gas prices, the price of Urea, a nitrogen fertilizer, has doubled to $600 a ton.

Should you hedge your rising food prices by buying stock in Potash and seed suppliers? Potash Corp. (NYSE: POT) and Mosaic Corp. (NYSE: MOS) have benefited from the rising price of Potash. And Monsanto Co. (NYSE: MON) is the biggest seed company out there. They have benefited in the past year -- with stock prices up 202%, 279%, and 103% respectively. But will they keep rising?

Don't blame agricultural economists if they're feeling somewhat befuddled right now concerning wheat.

After two years of record price increases among grains -- including wheat -- and amid a global commodities price surge, and more than a month after predictions of wheat and bread shortages capable of producing social unrest, the U.S. Government is now predicting a global wheat production recovery for 2008.

U.S. wheat production to rise

The U.S. Department of Agriculture's latest estimate predicts that 2008 world wheat production will increase considerably, including an 8% increase in U.S. production to 656 million tons.

The USDA said good weather and record-high prices that have increased incentives to plant and farm effectively are the primary factors behind wheat's expected large harvest this year, Reuters reported Wednesday.

Wheat traded down 22 cents at $7.73 per bushel in Wednesday afternoon trading. Wheat has declined more than 20% since hitting a record-high $12.82 per bushel on March 12, 2008.

China's inflation rate accelerated to its highest level in more than 11 years in January, rising to a year-over-year rate of 7.1%, up from a 6.5% pace in December, China's National Bureau of Statistics announced Tuesday.

The NBS said food prices surged 18.2% in the year-over-year period, as record snow storms blocked food transport, forcing prices higher.

Officials said the food shortages had eased, but that consumer prices were likely to continue to rise due to higher wage costs and higher costs for coal and other industrial materials.

China's government is attempting to cool its economy, in part to take pressure off wholesale prices, particularly commodities, but also to lower retail inflation. China's economy grew 11.4% in 2007. Many economists expect 8.5-9.5% GDP growth in 2008.

The news just continues to be "decidedly less than stellar," (to put it diplomatically), regarding Dean Foods Co.'s (NYSE: DF) business execution.

Dean Foods cut its full-year EPS estimate to about $1.25 versus the Reuters consensus estimate of $1.47 -- citing a consumer pull-back prompted by rising dairy prices at the retail level.

If was the second time this year that Dean Foods had cut full-year earnings estimates. In a statement, CFO Jack Callahan said the company expects an oversupply of organic milk to continue to affect results for the balance of this year and into at least the first half of 2008. In addition, overall sales have softened as consumers adjusted their consumption habits to cope with record-high food prices, Callahan said.

Personally, I don't feel a compelling need to know about where exactly my beef comes from. Yes, it would be interesting to know where those burgers I eat originate, but to me that's not essential information. That's not to say that I don't think about my food's place of origin, and I can understand the value of meat packing tracking. I'm just not in much of a position to do anything about it so I choose not to worry about it.

However, in 2002 a labeling law for meat was enacted as part of the Farm Bill. That law has yet to become enforceable. This does give me cause for concern because what I see here is that those people who find meat labeling a vastly more important issue than I do have been routinely thwarted in their attempts to make those laws a reality, and it seems perfectly clear to me that the whole issue is being controlled by carefully directed political contributions. The Democrat-controlled Congress will soon be addressing the issue. You might want to send them word of how you feel about it.

An expose in yesterday's The New York Times addresses the subject very eloquently and it brings to light some of the facts regarding how corporate cash has held the implementation of meat labeling requirements in check. Yes, I know full well that's the way things work on Capitol Hill but that certainly doesn't mean everyone's best interests are being served. When those political contributions blatantly override the will of the people, we need to take a good hard look at where those contributions come from and why.

There are two arguments being fielded against the proposition of meat labeling requirements. The first complaint regards the costs to implement such a program. That complaint is just plain stupid on its face. The USDA is already on the job, so we can add a penny a pound surcharge onto the price of meat and cut a couple perks from the legislative bodies. Yeah, that should do it.

The second argument calls meat labeling requirements a "protectionist proposition." I took just a moment to analyze that. Protectionist: One who seeks to provide or receive an act, theory, method or device of protection.

Yes, I think I can accept that.

Wal-Mart (NYSE: WMT) is keeping its promise of cost cutting on select items. Today it has announced that now it will trim many select food price items. This is in the shadow of recent price cuts on select consumer products, home electronics, plasma HDTV's, toys, and the like.

Below is a partial list of price cuts on the hundreds of food items effective through the holiday season:

-- Pilgrims Pride®/Tyson(TM)/ Perdue® Fresh Fryer Boneless Skinless Chicken Breast*, 26.4 oz. pack (was $5.35/now $4.74 - was $3.34 per lb./now $2.87 per lb.)
-- Louis Rich® Chicken Breast Strips, 6 oz. (was $2.87-3.27/now $2.50)
-- Smithfield(TM) St. Louis Ribs with Barbecue Sauce**, 39 oz. pkg. (was $11.45/now $9.98 - was $4.70 per lb/ now $4.09 per lb)
-- Select Hillshire Farm Lit'l Smokies® Assortment, 14-16 oz. (was $3.28 to 3.38/now 2 for $5.00)
-- Stove Top® Stuffing, 6 oz. (was $1.44-1.74/now $0.88)
-- Ocean Spray® Cranberry Sauce, 16 oz. can (was $1.14-1.36/now $0.88)
-- Betty Crocker® Potato Assortment, 7.2 oz. (was $1.23-1.43/now $.98)
-- Daisy® Sour Cream, 16 oz. (was $1.74/now $1.50)
-- General Mills Chex® Cereal, 15.6-16 oz. (were $2.78 each/now 3 boxes for $7.00)
-- Planters® Deluxe Mixed Nuts or Whole Cashews, 21-oz. can (was $6.94/now $5.97)
-- Keebler® Town House® Toppers Cracker Assortment, 13.5 oz. (was $2.50/now $2.00)
-- 7 UP®, 2 liter bottle (was $1.08/now $0.77)
-- Hershey's® Giant Chocolate Bar Assortment (was $1.64/now $1.25)

Food is generally considered a low margin sector already, and if you don't believe it is true then be sure to ask a grocer that is not Whole Foods or one of the other higher-end stores. Wal-Mart is showing more and more evidence that it is willing to sacrifice that bottom line and margin rates to keep its same-store-sales from being flat. This is still going to set a difficult bar for 2007 if this continues.

Besides the obvious answer being EVERYTHING, it makes you wonder what they'll cut next.

WMT shares are basically flat today. WMT is trading up $0.05 at $47.77; its 52-week trading range is $42.31 to $52.1

Jon Ogg is a partner in 24/7 Wall St., LLC; he does not own securities in the companies he covers.