Import prices increased 2.3% in May -- higher than expected -- driven by near record-high prices for imported oil and natural gas, the U.S. Labor Department announced Thursday. Excluding energy, import prices increased a scant 0.5% in May.
Economists surveyed by Bloomberg News had expected import prices to rise 2.0% in May. Import prices increased 2.4% in April and 3.0% in March.
In May, imported petroleum increased 7.8%, and natural gas increased 5.4%. Further, petroleum prices rose 68.8% for the year ended May 2008 -- the largest 12-month advance since the index increased 82.5% between February 2002 and February 2003.
Meanwhile, export prices increased 0.3% in May 2008, its smallest rise since September 2007. Further, export prices rose 8% over the past year.
In tough financial times, certain food products and food preparation ideas seem to gain increasing favor with consumers. People try to find ways to prepare nutritious and interesting meals while gaining greater purchasing power from their hard-earned dollars.
Just the other day, some of us bloggers were engaged in a lively email chat regarding some of our tried-and-true strategies for stretching our grocery dollars. As you can guess, ramen noodles almost immediately took center stage. I was entertained with stories of the many ways that the slender pasta can be made quite appealing. For instance, if you take any brand of chunky salsa, cut it 50% with water, add a sliced hot dog and pour the heated mixture over the noodles, it's really a very delicious and satisfying meal.
As the discussion ebbed, I couldn't help but be amazed that no one had mentioned SPAM, by Hormel Foods Corp. (NYSE: HRL). Surely, I thought, these people must know about the illustrious history of SPAM! Could they ignore the fact that SPAM has carried literally millions of people though hard times since prior to World War II? Though there is probably a ratio of three SPAM jokes to every one SPAM recipe, the fact remains that Hormel's SPAM, in all its variations, still sells exceptionally well. It sells even better as times get tough, as indicated by a recent Associated Press overview.
The economic boom in emerging markets has driven up both the value of commodities and the food production process itself.
Moreover, the long-term trends look good, with out-sized gains likely to stretch for more than five years, if current emerging market economic growth trends continue.
That suggests the sector is likely to continue to attract new investors, and huge investment funds - - not a conventional source of capital for farming, historically - - have already started making bolder and longer-term food-related investments, by buying farmland, fertilizer, grain elevators, and shipping equipment, The New York Times reported Thursday.
One example: the BlackRock fund group plans to invest hundreds of millions of dollars in agriculture, chiefly farmland, from sub-Saharan Africa to the English countryside, The Times reported.
Farms: the new asset class-of-choice
Economist Glen Langan told BloggingStocks Thursday the investment fund / managed fund money flow in farmland and food is the logical next step for agriculture, given the large gains in global food demand projected for the next 5-8 years.
"The equity markets have not fully come to grips with the enormity of his increased demand, but investment funds are beginning to comprehend it, and the money flow toward farms has begun," Langan said. "Think about this - - China and India combined could add about 3-5 million members to the world's middle class each year over the next decade. Those are consumers with money to spend, and they'll consume more food. And that total does not include expanding middle classes in South America, Eastern Europe, and the Middle East."
United Nations Secretary-General Ban Ki-moon called for a 50% increase in global food production by 2030, saying that a failure to meet the world's expanding need for food will create civil unrest and starvation, Bloomberg News reported Tuesday. Ban said food prices and production is tantamount to a global security issue, and will remain so for many years.
Prices for staples such as wheat, rice, and corn have increased more than 100% amid a global economic expansion. Part of the increased grain cost, particularly regarding corn (ethanol), can be attributed to the diversion of corn for energy production use. Most of the price increases for other staples, however, stems from the fact that -- for the first time in human history -- all regions of the world are embracing free markets and developing economically, at the same time.
Moreover, the U.N. said it expects large price increases to continue for at least the next several years, due to rising demand. The UN called even moderate 10-20% food price increases disruptive for poor households, which spend a disproportionate percentage of their income on food.
The U.S. government now says the price of food will rise 5.5% this year. That revises an earlier estimate of 4.5%. According toThe Wall Street Journal, "The forecast released Monday by the Agriculture Department is the third consecutive month the agency has raised its food-inflation forecast."
The number may be too low. The last federal government data showed the cost of food rising more than it had in almost two decades. The prices of rice, wheat and corn are still near all-time highs, and global demand is likely to move those numbers higher. The demand for ethanol is an often-mentioned reason for the price increase in corn. There is little reason to see that changing.
If food costs were going up by themselves, things might not be so bad for American consumers. But consumers are being beaten down by the "triple play" of rising gasoline and food prices coupled with difficult access to credit. Their need for money is rising and their access to it is dropping off.
Food is part of a problem, but only a part. Until the government comes up with a solution, consumer spending is going to be limited to bread and gas.
Douglas A. McIntyre is an editor at 247wallst.com and author of theTen Stocks Under $10 letter.
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.
Growth is slowing in all regions of the world, and inflation is rising, but the International Monetary Fund's No. 2 person in charge says a repeat of the 1970s stagflation period isn't likely.
IMF First Deputy Managing Director John Lipsky said the "inflation speed-up must be taken seriously as it creates potentially significant challenges to economic stability," Bloomberg News reported Thursday. However, Lipsky added that a return to 1970s-style stagflation isn't likely, but it cannot be totally ruled out.
Oil, commodity-rooted inflation
Further, Lipsky underscored that the current inflation rise is being driven by a fundamental increase in demand for commodities, primarily oil, and to a lesser extent by supply constraints around the world, Thomson Financial reported Thursday via Forbes.com. Hence, the recent price increases are likely to prove finite, Lipsky added, unless these items keep rising more rapidly than other items.
Economist David H. Wang told BloggingStocks Thursday he agreed with Lipsky's categorization of the most-recent rise in inflation but added that government subsidies may prevent a pullback in commodity prices, especially oil. Classic economic theory holds that as the price of a good rises, people will use less of it. However, governments in China, Venezuela and the Middle East, among other nations, subsidize gasoline/fuel, lowering its cost, which discourages conservation, Wang said. The United States does not subsidize motor fuel at the federal level, but individual states do subsidize heating oil/natural gas for low-income citizens.
Readers of this space know that the preferred tack is to look for well-capitalized companies with competitive advantages in sectors with secular, long-term growth trends. One select sector has been oil/oil services, and another right near the top has been fertilizer producers, primarily Potash, Mosaic, and Agrium, first reviewed in December 2007-January 2008.
To be sure, the sector has been bid-up, as a wider community discovers the value of fertilizer and companion products amid the likely substantial increase in global food demand in the decade ahead.
Too late to get in on a fertilizer play? Hardly. P/Es are higher, so entry point is key, but with the above in mind, here's a revised review of the fertilizer producers, with the updated Sell/Stop Loss levels. They're ranked by risk, with the top stock, POT, being the lowest risk.
Inflation, public enemy No. 1 in the 1970s in the United States, appears to be regaining its former title in the first decade of the 21st century.
But is it here to stay? That depends on the data you're looking at, most economists agree. U.S. inflation is trending higher, but whether it is more structural or cyclical (simply a product of current demand conditions), is the focus of debate in economics circles.
Structural view
Economist Peter Dawson says structural changes are occurring that will keep inflation well above the U.S. Federal Reserve's 2-2.5% comfort zone for years. Those changes include strong demand for commodities in both emerging and developed economies, the U.S. budget deficit and trade deficit, and the weak U.S. dollar.
"What we're seeing today, in my view, is a new economic age. It's not a cliché. We have more than half the world developing at the same time and it has and will continue to place pressure on commodity prices, oil being the first, but now grains / food stuffs and minerals following close behind," Dawson said. "This is creating a whole new cost layer not only in the U.S., but around the world."
A classic market theorist, Dawson does expect higher prices to do what they're supposed to do, eventually: reduce demand. However, with regard to grains, it's difficult to predict the level at which demand will ebb, due to government subsidies. Meanwhile, oil, he said, "is reaching its zenith, probably at $125 per barrel." Further, Dawson believes a sustained $100 oil price will "propel the development of cheaper, alternative energy sources in the next decade" that will enable sufficient global economic growth. But until commodity demand cools and new energy forms arise, you can expect above-average inflation, both in the U.S. and globally.
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.
March producer prices increased by more than double the amount forecast, as higher fuel and food costs worked their way into the commercial system, the U.S Labor Department announced Tuesday.
Producer prices increased 1.1% in March 2008, while the core rate, which excludes food and energy costs, increased 0.2%, the Labor Department said.
Economists surveyed by Bloomberg News had expected the March 2008 PPI index and core rate to increase by 0.5% and 0.2%, respectively.
PPI surging
So far in 2008, producer prices are increasing at an alarming rate, a 10.2% annual rate, compared to 8.4% for the same period a year ago. The core is increasing at a 5% annual pace, compared 2% for a year ago.
For the past 12 months, producer prices have increased 6.9%, and the core rate has risen 2.7%.
Economist Steve Affinito told BloggingStocks Tuesday the March statistic is more evidence of the effects of record-high oil prices. "It's another hot number, and cost pressures are increasing," Affinito said. "The core PPI is somewhat deceptive because we can see the effect of high oil costs working their way through the commercial process. No question, PPI inflation is rising, which means consumer prices will increase."
In March 2008, food prices rose 1.2%, led by an 8.7% increase in the price of rice, and a 15.4% increase in vegatables. Energy costs rose 2.9%, led by a 15% increase in diesel and a 13% increase in home heating oil. Raw material costs surged 8.8%. Auto costs fell 0.2%.
U.S. consumer confidence in early April 2008 plunged to its lowest level in 26 years, suggesting American adults are becoming more concerned about the near-term health of the U.S. economy as it slides into its first recession in six years.
The Reuters/University of Michigan Surveys of Consumers said its preliminary index of confidence fell to 63.2 in April 2008 from 69.5 in March 2008. It was the index's lowest reading since it fell to 62.0 in March 1982.
Meanwhile, the index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, fell to 53.4 in April 2008 from 60.1 in March 2008. It was the expectations index's lowest reading since November 1990, Reuters reported Friday.
'A really bad number'
Economist Peter Dawson, who did not participate in the survey, told BloggingStocks Friday there's no way to sugarcoat the latest consumer sentiment reading. "It's a really bad number. Just awful. Consumers are expressing serious concern about high gasoline, oil and food prices, the threat of job layoffs, and the general the state of the economy," Dawson said. "Given that consumer spending a represents about two-thirds of economic activity, it doesn't bode well for the economic recovery timetable."
With the above in mind, Dawson said those who expect a U.S. economic recovery to start as early as Q3 2008 "are at the extremely optimistic end of the recovery spectrum."
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.
The reality of rising food prices in the United States sometimes registers with consumers in subtle ways.
A shopper who regularly buys groceries at the Stop & Shop in the New York suburb of Larchmont, New York, scans a loaf of bread and suspects that the scanner must have made a mistake because it indicated $2.49 for the loaf.
Then the shopper realizes the scanner didn't make a mistake: that loaf of bread, which was just $1.79 or thereabouts a few months ago, is now more than two bucks -- a 39% price jump.
Whether you realize it or not, food prices are ramping higher, due to surging commodity prices and rising demand for high-protein foods in emerging market countries. Food prices rose 5% in 2007, according to U.S. Department of Agriculture data, the Associated Press reported Tuesday.
In tough financial times, certain food products and food preparation ideas seem to gain increasing favor with consumers. People try to find ways to prepare nutritious and interesting meals while gaining greater purchasing power from their hard-earned dollars.
The economic boom in emerging markets has driven up both the value of commodities and the food production process itself.
March producer prices increased by more than double the amount forecast, as higher fuel and food costs worked their way into the commercial system, the 
U.S. consumer confidence in early April 2008 plunged to its lowest level in 26 years, suggesting American adults are becoming more concerned about the near-term health of the U.S. economy as it slides into its first recession in six years. 
The reality of rising food prices in the United States sometimes registers with consumers in subtle ways.
Comfort Zone Investing: Keep your recovery expectations real
Will Americans have to slim down to fit into their cars?
Starbucks: The next McDonald's
