Load Up the Pantry
April 21, 2008 6:47 p.m.
I don't want to alarm anybody, but maybe it's time for Americans to
start stockpiling food.
No, this is not a drill.
You've seen the TV footage of food riots in parts of the developing
world. Yes, they're a long way away from the U.S. But most foodstuffs
operate in a global market. When the cost of wheat soars in Asia, it
will do the same here.
Reality: Food prices are already rising here much faster than the
returns you are likely to get from keeping your money in a bank or
money-market fund. And there are very good reasons to believe prices
on the shelves are about to start rising a lot faster.
"Load up the pantry," says Manu Daftary, one of Wall Street's top
investors and the manager of the Quaker Strategic Growth mutual fund.
"I think prices are going higher. People are too complacent. They
think it isn't going to happen here. But I don't know how the food
companies can absorb higher costs." (Full disclosure: I am an investor
in Quaker Strategic)
Stocking up on food may not replace your long-term investments, but it
may make a sensible home for some of your shorter-term cash. Do the
math. If you keep your standby cash in a money-market fund you'll be
lucky to get a 2.5% interest rate. Even the best one-year certificate
of deposit you can find is only going to pay you about 4.1%, according
to Bankrate.com. And those yields are before tax.
Meanwhile the most recent government data shows food inflation for the
average American household is now running at 4.5% a year.
And some prices are rising even more quickly. The latest data show
cereal prices rising by more than 8% a year. Both flour and rice are
up more than 13%. Milk, cheese, bananas and even peanut butter:
They're all up by more than 10%. Eggs have rocketed up 30% in a year.
Ground beef prices are up 4.8% and chicken by 5.4%.
These are trends that have been in place for some time.
And if you are hoping they will pass, here's the bad news: They may
actually accelerate.
The reason? The prices of many underlying raw materials have risen
much more quickly still. Wheat prices, for example, have roughly
tripled in the past three years.
Sooner or later, the food companies are going to have to pass those
costs on. Kraft saw its raw material costs soar by about $1.25 billion
last year, squeezing profit margins. The company recently warned that
higher prices are here to stay. Last month the chief executive of
General Mills, Kendall Powell, made a similar point.
The main reason for rising prices, of course, is the surge in demand
from China and India. Hundreds of millions of people are joining the
middle class each year, and that means they want to eat more and
better food.
A secondary reason has been the growing demand for ethanol as a fuel
additive. That's soaking up some of the corn supply.
You can't easily stock up on perishables like eggs or milk. But other
products will keep. Among them: Dried pasta, rice, cereals, and cans
of everything from tuna fish to fruit and vegetables. The kicker: You
should also save money by buying them in bulk.
If this seems a stretch, ponder this: The emerging bull market in
agricultural products is following in the footsteps of oil. A few
years ago, many Americans hoped $2 gas was a temporary spike. Now it's
the rosy memory of a bygone age.
The good news is that it's easier to store Cap'n Crunch or cans of
Starkist in your home than it is to store lots of gasoline. Safer,
too.
http://online.wsj.com/article/SB120881517227532621.html
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