Food manufacturers promised Mexico's government on Wednesday they would freeze prices on more than 150 food products to help families cope with the rising cost of food, The Associated Press reported Thursday.
Mexico President Felipe Calderon said prices for goods including beans, canned tuna, fruit juices, coffee, ketchup and canned tomatoes will remain fixed until December 31, 2008, The AP reported. Calderon blamed rising food prices on surging global energy prices, food demand in China, and the use of corn for ethanol production.
Good intention, wrong method
Economist Glen Langan said he agreed with the need for food assistance for Mexico's poor, but disagreed with the mechanism.
"A more effective program would be a larger cash payment or food subsidy to citizens," Langan said. "The pricing mechanism should be kept in place, because it has many benefits. Cash payments or subsidies to poor residents are much more targeted and don't provide a benefit to those who don't need it. [Mexico President] Calderon did announce a monthly subsidy, 120 pesos [$11.60], but it isn't large enough."
Those businesses relying on feed commodities have certainly had to cope with a series of bullish sector trends in the past two years. Increasing demand for food in rapidly growing emerging market countries and the use of corn for ethanol have been the achieve price drivers.
Now, at least for the short-term, add weather concerns. Corn approached a record $8 per bushel Monday as the prospect of more rain on already-soaked Midwest farms increased the likelihood of extensive crop damage, Bloomberg News reported.
Soybeans, wheat, and rice also rose Monday at midday after the National Weather Service predicted that flooding in the Midwest will probably result in "hundreds of millions of dollars" in crop damages. Rice, a staple for about 50% of the world, rose 50 cents to $20.80 per 100 pounds. Soybeans traded up 19 cents to $15.79 per bushel.
Economist Glen Langan, whose specializations include agricultural economics, told BloggingStocks Monday the world needs a strong harvest, across the feed spectrum, from the United States and other nations. "A strong harvest would take some of the price momentum out of corn and wheat, in particular. Unfortunately, we may be headed for a sub-par harvest in the U.S. if current weather patterns persist," Langan said.
Corn rose to a record Monday on talk that heavy rain in the Midwest U.S. will cut supplies, Bloomberg News reported Monday. Corn for July delivery rose about 22.25 cents to $6.73 per bushel early Monday.
Prices also rose as traders sought corn as yet another hedge against inflation amid rising oil costs and a weak/falling U.S. dollar, Bloomberg News reported Monday. Demand for corn is also being bolstered by the use of the commodity as an ethanol source.
Oil fell $1.60 to $136.94 per barrel by midday Monday on profit taking, following its record two-day surge last week. Meanwhile, the dollar fell slightly against the euro and pound, to $1.5715 and $1.9756, respectively, but rose 1 yen to 106.03 versus Japan's yen.
The world is flat... for farming, too
Economist Glen Langan told BloggingStocks Monday those who find corn to be a curious inflation hedge are behind the curve.
July rice traded as low as $18.52 per 100 pound bag, down about 5.5% and at its lowest level since March 24, 2008. Rice has now declined about 26% since its record high in April 2008.
Wednesday's downward catalyst? Improving rice planting conditions in Asia and the United States, along with falling wheat prices in the U.S. Rice is a staple for about 50% of the world's population. The U.S. Department of Agriculture announced Tuesday that 72% of the U.S. rice crop was in good or excellent condition, up from 65% a week earlier. Further, wheat also fell to as low as $7.40 per bushel, which is 45% lower than the February 2008 record of $13.50 per bushel.
Shortages not likely
Economist Glen Langan, whose specializations include agricultural economics, told BloggingStocks Wednesday the food supply data points do not negate the two macro trends driving grain commodities higher -- rising developing world food demand from expanding middle classes and institutional investors chasing outsized equity returns -- but they do suggest one battle is being won: the battle over shortages.
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.
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.
Billionaire investor George Soros said Thursday that the boom in commodities is still in a "growth phase" despite the fact that prices for oil, wheat, rice, and gold have risen to records in 2008, Bloomberg News reported Thursday.
Soros said the relative stock market slump, combined with favorable, long-commodities demand, has prompted institutions to direct money to commodities, creating a "commodity as asset class" phenomenon, Bloomberg News reported. He added that increasing institutional involvement was creating a generalized commodity bubble.
Relative shortages
Moreover, demand for selected commodities (oil, rice, wheat) is so great, it's creating relative shortages, Soros added, which is only heightening the return on equity potential of commodities, Bloomberg News reported.
Rice, a staple food for about 3 billion people, is becoming a precious commodity as a result of rising demand -- a reality that's prompting some agriculture watchers to ask whether global grain producers will be able to keep the world adequately supplied amid solid emerging market economic growth.
China, Egypt, Vietnam, and India, which represent about one-third of global rice exports, curbed sales this year, and Indonesia did so as well, Bloomberg News reported Monday. Grain and food demand is increasing at above-trend rates due to solid economic growth in emerging markets. These regions are experiencing expanding middle classes -- a factor that historically has almost always led to rising per capita food consumption in the country where the growth occurred.
As a result, the price of rice and other commodities has soared -- rice hit $21 per 100 pounds on Monday, Bloomberg News reported -- and governments may face increased social unrest, given the pivotal role rice plays in many developing nations.
Rice hit a new all-time high, and corn neared a record on talk that commodities demand for grains will outstrip supply, Bloomberg News reported Thursday.
Rice, which is a staple food for about 3 billion people, surged 3.6% to $20.26 per 100 pounds Thursday, while corn for May 2008 delivery rose about 0.5% to $5.9875 a bushel, Bloomberg News reported. Government curbs on grain exports and bad weather are contributing to concerns that strong economic growth in emerging markets will cause demand to exceed the market's ability to provide adequate grain supplies.
The song remains the same
Economist Glen Langan told BloggingStocks Thursday the song remains the same regarding commodities, long-term. Although the commodities sector is overbought short-term, that short-term trading condition does not change the sector's secular, long-term fundamentals, which remain very bullish, he said.
"You could argue that a short-term bubble still exists in commodities like rice, wheat, soybean, and corn, so a word to the wise for any Johnny-come-lately traders," Langan said. "But from a fundamental and an economic perspective, grains and other commodities will continue to trend higher, after a correction. Decisions by China, India and others to cut rice exports speak to this trend. I don't see it ending in 2008."
The UBS Bloomberg Constant Maturity Commodity Index of 26 commodities has more than tripled in the last six years, as global demand, led by emerging market growth, has outpaced supplies for both commodities and raw materials.
Four well known CEOs weighed in on CNBC's Squawk Box, giving their particular insight on economic conditions one day after the Federal Reserve made yet another basis rate cut. Each of the four Chief Executives acknowledged the tough going in the economy, yet each also sought to inject a thread of optimistic patience into their commentary.
Mike Jackson, CEO, Auto Nation Inc. (NYSE: AN), came to the defense of Reserve Board Chair Ben Bernanke. While admitting that the chairman may have crawled blindly into what is now mostly economic turmoil, Jackson stated: "...I think he absolutely has it right now. He's got to be on full flight recession mode, and we'll worry about the dollar, and commodities and inflation later." Personally, I think Benanke should be making moves to protect the consumers and their dollars first, and let inflation take care of itself until the consumer sector is back up to speed.
Wilbur Ross, CEO, W L Ross & Co. Played the most obtuse card stating: "My own opinion is that it's just more of the same volatility." More of the same volatility? Yeah the economy is volatile ... DUH!
The commodities fad took a major step toward becoming an investment trend when investment giant Calpers -- the $240 billion California Public Employees' Retirement System -- announced it may increase its commodities investments 16-fold to $7.2 billion through 2010, Bloomberg News reported Thursday.
Calpers, the largest pension fund in the United States, said it would hold between 0.5% and 3% of its assets in commodities. Last year the fund invested $450 million in commodities.
Strong emerging market growth, particularly in China and in sections of Latin America, has created a bull market in oil, commodities and raw materials, and many economists say these assets are likely to outperform both inflation and selected investment classes in 2008, and possibly for a longer time period.
As commodity indexes surged to record highs Tuesday, an economist and analyst offered time-tested advice on the macroeconomic and portfolio implications of the market's latest investment obsession of the moment.
Economist Glen Langan told BloggingStocks Tuesday that the steep climbs in soybean, wheat, platinum, coal and gasoline all speak to, for the most part, a secular trend that the world's major economic regions will have to address at some point: rising commodity prices that outstrip the developed and developing worlds' ability to absorb those price increases.
Langan said demand for commodities and raw materials remains above average, even as prices have risen, due to strong emerging market economic growth. Typically, after extended bull runs, either demand recedes or prices drop. Prices, so far, haven't dropped. The UBS Bloomberg Constant Maturity Commodity Index gained as much as 2.8% to 1,441.593, the highest ever, Bloomberg News reported Tuesday. "So unless we've suspended a law of economics, growth in these regions has to slow, at least somewhat," Langan said.
First oil. Then copper, then lumber, and coal. And now grain.
The solid economic growth in the world's emerging markets that's caused oil / coal and commodities prices to surge is now fully hitting the grain market.
So much so, that some food producers are calling on the U.S. government to restrict exports due to soaring prices for grains they use to make cereal and other foods. Meanwhile, some farmers are asking the U.S. Government to ease restrictions to enable farmers to plant more acres, The Wall Street Journal reported Thursday [Subscription required].
For food producers, the issue involves limiting a major operating cost. During the past year, spring wheat has risen to an astounding $17.63 per bushel, up from about $4.90 a year ago. Flour, which used to cost about $15 per 100 pounds, now sells for about $45-48 per 100 pounds. Food producers say prices are increasing so fast, they can't pass along price increases quick enough to keep up.
Wheat prices hit a record high for a third day on Friday, trading up to almost $11 after a U.S. government report confirmed that grain stores are nearing historic lows.
Wheat for delivery in March rose 30 cents -- the exchange's one-day limit -- to close at $10.93.
Obviously, this is bad news for consumers, especially lower-income workers and those in developing countries for whom food is a large portion of the budget.
Back in December, our own Sarah Gilbert wondered about a world of $7-a box cereal.
With wheat prices so high, it looks like oatmeal and Cheerios could make a comeback.
On a lighter note, Portfolio.com's coverage of the story included an interesting picture choice. I'm sure this is just a computer glitch, and I certainly wouldn't suggest that there's any bad intent here and definitely nothing to be offended about.
Wheat prices pushed above $10 per bushel Monday, as dry weather threatened crops in Argentina, adding to concerns regarding a potential wheat shortage, Bloomberg News reported Monday.
The bullish move in wheat sent other grains and oilseeds higher. Argentina, now experiencing summer, is a key supply of wheat for bread, pasta and livestock feed.
The price of wheat has more than doubled in the past year, with wheat climbing another 30 cents to $10.03 per bushel Monday morning. Soybeans gained 17 cents to $11.93 per bushel. Corn rose 5 cents to $4.43 per bushel.
Global growth
Economist Steve Affinito told BloggingStocks Monday that wheat's climb is part of a global trend of higher commodity prices, driven by emerging market economic growth.
With the markets' choppy/consolidation pattern continuing, it's best to consider a defensive stock or two for your portfolio, and Archer Daniels Midland Company (NYSE: ADM).
The argument here is not that the biofuel trend is over; hardly. However, the frenzy that accompanied the financial world's realization that biofuel could represent a suitable alternate energy form, for some energy users, appears to tapering.
Biofuel interest remains high, and ADM is likely to benefit from wider and wider use these fuels. Most analysts see accelerating annual earnings growth on strong corn and soybean demand, with pricing power. Further, it's worth underscoring in these high-energy-cost times that ADM is foremost a large, vertically-integrated, food commodity company (wheat, corn, soybeans), and food rarely goes out of style. The Reuters F2008/F2009 EPS consensus estimates for ADM are $2.58/$2.97.
Note: Technical analysis agnostics stop reading here; all others continue.]
Technically, ADM's chart looks adequate. A base appears to be in place in the $32 range, and the stock has moved back above its 50-day and 200-day moving averages. Further, ADM's low p/e of 11 also reduces the stock's risk/return ratio.
Stock Analysis: Archer Daniels Midland is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from ADM's shares. Sell / Stop Loss: $24.
Food manufacturers promised Mexico's government on Wednesday they would freeze prices on more than 150 food products to help families cope with the rising cost of food, The Associated Press reported Thursday.
Those businesses relying on feed commodities have certainly had to cope with a series of bullish sector trends in the past two years. Increasing demand for food in rapidly growing emerging market countries and the use of corn for ethanol have been the achieve price drivers. 
Don't blame agricultural economists if they're feeling somewhat befuddled right now concerning wheat. 
Four well known CEOs weighed in on 
First oil. Then copper, then lumber, and coal. And now grain. 
For blue chip buyers: 'This too shall pass'
With the Fed Funds rate at 2%, why are mortgage rates so high?
Cramer on BloggingStocks: Banks fail to raise money when they could 
