We have yet another food product to add to the inflation list. This time it's cattle. Cattle futures on the Chicago Mercantile Exchange closed at an all-time high of $1.1752 per pound, as reported in the Wall Street Journal.

Beef is a in a special category. Unlike grains, which are harvested yearly, it takes about three years to raise cattle and bring them to market. High grain prices and high exports have shrunk the size of herds. They are at their lowest levels since the 1950s. With prices so high, some cattle ranchers choose to slaughter their cattle rather than let them mature to full term. These young cattle are called feeder cattle.

Tyson Foods (TSN) is on the front line of food inflation. While the Federal Reserve holds that inflation is just 2%, Donnie Smith, CEO of Tyson said that "domestic food inflation will likely overtake U.S. government forecasts as crop and animal feed prices continue to rise," The Wall Street Journal reported.

Last week, Tyson reported a profit of $298 million for the quarter to Jan. 1, compared with $160 million a year ago. Per share earnings rose to 78 cents from 42 cents. Revenue was up 15% to $7.6 billion.

This year get ready to open your wallet wider and expect higher credit card bills for the basics like food, clothing and energy. You are probably wondering what is going on. While you weren't paying much attention, the price raw commodities surged in 2010. Corn, sugar, wheat, cotton, coffee and soybeans prices soared last year, as reported in the Wall Street Journal.

A confluence of factors pushed prices up. We had and still have demand explosion from China and India. The United Nations Food and Agriculture Organization's monthly food index which monitors a basket of commodities including meat, dairy and sugar rose for the sixth straight month to a record.

Even though eating properly handled and cooked pork products is safe, some Americans and international consumers will still avoid pork, due to the H1N1 flu.

That would typically hurt protein food producers, but Tyson Foods (NYSE: TSN) has alternatives, namely chicken, which is a major reason I'm reiterating my Buy rating for Tyson Foods, first recommended on May 11, 2009, at a price of $12.35.

Much has been written about the add-ons or 'pork' in the rescue package passed by the U.S. Congress and signed President Bush.

The add-ons, which increased the bill's projected cost by $130-$165 billion, depending on the analysis, have been viewed as another example of "special interest lobbying," "sneaky ways to get pet projects passed," "ripping off the taxpayer" and/or as simply un-American.

Well, the truth is, add-ons in the United States have taken place in every Congress since the nation was founded. Further, no one really knows who made the first legislative "deal," but to say that senators in ancient Rome or officials in Greece, did not trade votes for projects or patronage would be a stretch.

"Democracy is the worst system ...

Of course, it's much more ethical -- some would call it virtuous -- to propose a bill, then get a large majority to render a decision on the program/policy/law solely on its merits, driven by whether the bill is in the nation's interest.

And likewise, add-ons/pork can increase federal spending by substantial amounts, which makes it harder for the federal government -- or any government, for that matter -- to live within its means.

Rising commodities prices led both Smithfield Foods Inc. (NYSE: SFD), the nation's largest pork producer and processor, and poultry producer Sanderson Farms Inc. (NASDAQ: SAFM) to report quarterly losses on Tuesday.

Smithfield Foods said it lost $12.6 million, or 9 cents per share, in its fiscal first quarter due in part to a $20.1 million write-down in the value of commodity contracts. The Smithfield, Va.-based company had reported a profit of $54.6 million, or 41 cents per share, a year ago.

Revenues rose 20% to $3.14 billion in the quarter. Analysts surveyed by Thomson Reuters had forecast a loss of 4 cents per share on $2.87 billion in sales.

In addition to hurting from high costs for such ingredients as grain and fuel, Smithfield also faces an oversupply of meat on the market, which is keeping prices for pork lower. To help push prices up, meat producers such as Smithfield have announced intentions to cut supply.

Shares of Smithfield fell 88 cents, or 3.7%, to $22.71 in morning trading. That's up from a 52-week low of $16.61 in early July, but shares have fallen about 21% since the beginning of the year.

Casual restaurant and pork products producer Bob Evans Farms, Inc. (NASDAQ: BOBE) beat Wall Street estimates of $0.39 per share and posted another profitable quarter, despite rising labor and food commodities costs. This is the fifth consecutive quarter of same store sales increases, though admittedly some of those increases have been small. CEO Steve Davis is justifiably proud of the cost control measures and productivity programs he has instituted across the board. The company has cut payroll and advertising expenses deeply.

Net income for 2Q 2008 was $15.5 million or diluted EPS of $0.45, up 21.6% from a year ago and beating Wall Street estimates by 6 cents. Net sales in the restaurant segment rose 2.9% to $356 million. But the growth driver for Bob Evans right now is its much smaller food products segment that produces pork products for sale in grocery stores. Thus segment posted net sales increase of 5.5% to $71 million, and a 79% operating income increase.

Bob Evans has repurchased two million shares thus far in FY 2008, with plans for an additional one million share buyback. FY 2008 guidance remains as previously forecast -- diluted EPS in the $1.77-$1.84 range. Patient investors are finally getting to share in the pork.

Agrium (NYSE: AGU) volatility is flat as AGU at record high on strong fertilizer demand. AGU, an agricultural retailer and fertilizer producer, closed at $54.38. AGU over all option implied volatility of 39 is near its 26-week average of 38 according to Track Data, suggesting nondirectional risk.

Terra Industries (NYSE: TRA) volatility is flat; TRA is near record on demand for nitrogen. TRA, an international producer of nitrogen products for industry and agriculture, closed at $31.26. TRA is expected to report EPS on 10/25. TRA over all option implied volatility of 52 is near its 26-week average of 50 according to Track Data, suggesting nondirectional risk.

Option update provided by Stock Specialist Paul Foster of theflyonthewall.com.

Tyson Foods Inc. (NYSE:TSN) shares are up after the chicken, beef, and pork processor reported better-than-expected second-quarter results. The company posted $0.31 EPS, well above the $0.25 First Call estimate and well above a loss posted in Q2 2006. Revenues rose almost $600 million to $6.96 billion, also above the $6.74 billion estimate.

To top it off, the company also raised annual EPS guidance from $0.65 to $0.90 to $0.82 to $0.92. It appears the cost cutting and containment measures are working. The company has closed some processing plants, installed spending caps, and you haven't even heard press on major labor violations in a long time. The company's operating income improved in all operations including its prepared foods unit.

The company is also in the midst of a 'quasi-healthier' launch with its "Raised Without Antibiotics and Any'tizers(tm)" and is also in a renewable fuels venture based on leftover animal fat products that would otherwise end up in landfills.

The other good news here is that it has all the distribution channels in place, and it still has major brand recognition. The reason this is important is that the company noted a higher feedcost being offset by it raising its own sales prices.

Tyson has greatly improved its position from its woes a few years ago. Shares are up 50% from yearly lows and closer to recent highs. At $21.60, that's much closer to the $24.32 high over the last 52-weeks. This one sounds good enough, I think I'm having some chicken for lunch.

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

I was captivated when I read in yesterday's Wall Street Journal [subscription] that the Chinese government, in response to a growing pork shortage brought about by the country's growing prosperity, was considering tapping into its STRATEGIC PORK RESERVE. Really. Apparently, it has stockpiled frozen pork as well as pigs on the hoof against the day meat prices skyrocket.

After I quit giggling over the image, I began to wonder if our government was doing enough to protect us from similar shortfalls. I know, of course, about our huge strategic petroleum reserve, sufficient to fuel every SUV in the country for a dozen trips to Wal-Mart (NYSE: WMT). But petroleum isn't our only essential resource. Do we have a strategic beer reserve? A strategic disposable diaper reserve? And how about our supply of Starbucks (NASDAQ: SBUX) coffee? Can you imagine the riots if our supply of French roast is cut off for even a day? Don't threaten my freakin' coffee!

Of course, we aren't alone in the world in our dependence on life's essentials. One would think that Norway would have a substantial Strategic Herring Reserve. And where would Italy be without a Strategic Olive Oil and Garlic Supply? I'd guess Monaco has thousands of extra cases of Taittinger put aside, while the Saudis stockpile extra wives. Closer to home, you'd think Canada would stockpile pucks, Mexico tortillas.

If you want to take a flyer that the Chinese pork shortage might force them to shop internationally, you might look at leading U.S. pork producer Smithfield Foods (NYSE: SFD), which is taking over another large producer, Premium Standard.

I have no recommendations for plays in a puck shortage.