Renewed Midwest rains has corn and soybean prices through the roof, reports AP. Corn prices and soybean prices hit all-time highs following more heavy rains in Midwestern states, which left replanted crops once again under water.

Widespread belief that the Fed has failed to keep inflation in check is further supporting high corn prices, reports Bloomberg.

Rising Food Costs

By Kevin Kerr

We’ve been hearing for some time now about the rising costs of food in this country. The reason for these high costs are not as simple as some people think. Not only are we seeing record prices for grains and other crops, but also the high cost of fuel is making the harvesting of the crops in particular, as well as the simple shipping of the food across the country very expensive. Some prices are already out of hand and could still have a ways to go.

Making Tough Choices

I know what is going on inside the heads of the farmers. This spring, I went to visit farms in the Midwest, as I do every year.

It was a Saturday in mid-April when I pulled up to the Miller Armstrong Building in the sleepy farm town of Waseca, Minn. Waseca is also home to a federal penitentiary and Jeff Skilling, former Enron CEO and allegedly one of the “smartest guys in the room.” Now he is a convicted felon, serving time.

I drove into town and watched the cattle grazing outside the prison. I wondered for a moment if those cows knew they had a famous neighbor. They didn’t seem to care. The cows seemed more concerned about where to find some food. It was certainly foreshadowing what I was about to hear from the farmers.

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The High Price of Ignorance

I was greeted by my friend and Outstanding Investments subscriber Geb Singlestad. Geb escorted me to a casual meeting at the Armstrong hall building. Charlie Nedoss of Peak Trading and about 15 other farmers accompanied me. One reporter showed up. Everyone introduced themselves, and we all grabbed some coffee. I spoke with the reporter for a few minutes, and the meeting began.

The thing about small-town America is everyone is friendly, but cautious. Geb invited all these farmers to the meeting. Later on, we learned that most of them thought we were there to sell them something… We were not.

Most of the farmers showed up out of respect for Geb, because he is a sort of patriarch in the community. He had just had knee surgery and was already getting around just fine. Amazing, don’t you think? The meeting was scheduled to last about 45 minutes, but once it got going, we covered so much ground and there were so many questions that we ended up being there for two and a half hours.

The questions came fast and furious. One farmer asked, “Do these people in Washington or in the cities know how much we are paying for our input costs? Do they have any clue how much the farmer is being squeezed?”

The best question of all, in my opinion, was asked a few times. “What will it take? How high will prices have to go to get people to change?”

I said that I think prices will have to go much, much higher before urbanites even consider switching off American Idol and protesting in the street. The farmers realize that most people in the country have no idea about either the process or the cost of what it takes to get their dinner from field to fork.

One farmer belted out, “As long as they have groceries on the shelves, lights on, the ATMs working and their jobs, then all is well. They don’t have a clue.”

Ethanol Rolls Along

There has always been a line between city and suburb dwellers and their rural counterparts. Most people in urban areas have little understanding of how much work goes into generating our food supply and then transporting it to each and every city.

Just the volume of diesel fuel usage to grow the crops is astounding. Agriculture is a very fuel-intensive undertaking. With diesel prices topping $5 and rising, the costs continue to climb at the grocery store.

After our meeting with the farmers, Geb took Charlie and me to see the newest ethanol plant being built in Janesville, Minn. This new structure is a 110-million-gallon ethanol plant. It has several rail lines being built to run directly into the plant. The outside of the building itself is huge. The towering cranes were working full tilt while we were there, and the parking lot was full of workers’ cars. The one thing that neither Charlie nor I saw was a water supply. An ethanol plant uses a huge amount of water, so where will it come from?

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It seems with ethanol, as with so many things, the answer from the government often comes after a major project is already well under way. For the last eight years, the Bush administration has seemed to be more likely to do first and fix later. What’s the old saying? “Better to ask for forgiveness than permission.”

Anyway, the ethanol plant has provided many good jobs in the area and is slated to produce a real boom for the local economy. That’s all well and good, but is it sustainable?

The High Price of Low Living

With egg prices surging 26 percent and milk prices near record levels, consumers are making very difficult choices. My own aunt leaned into me at dinner recently and said, “Ya know, I bought a container of whipping cream and it was $7. That’s crazy.” Yes, it is crazy, and the even more insane thing is that prices may well have much further to go.

The farmers I met with are struggling with some of the highest input costs they have ever faced, and for some, it means that with all the massive expenses of running a farm, their margins are shrinking fast. Most of the farmers wondered what I think would happen if food stopped showing up on shelves in the city and the power went out and the ATMs shut down. You know what would happen? Panic.

The divide between the food source and the end-users is wide. As costs continue to skyrocket, we better begin to appreciate and support our farmers, because the long emergency is here and time is running out.

As I said my goodbyes to the farmers, Scott walked with me on his farm and showed me all his new farm equipment. One tractor, a John Deere, looked brand-new. He told me that Deere (NYSE: DE) simply has no equipment in stock, because sales are so red-hot. He said it’s much the same for Caterpillar (NYSE: CAT) and others. So even as the farmers complain about higher input costs and consumers in the cities complain about higher food costs, the beat goes on.

The solutions are not at all clear, but it is obvious that we need to begin to think locally. Food sources will need to be closer to the final consumers. The old way is simply not sustainable anymore.

In the brave new world, we will all likely have to become “locavores.” A locavore is someone who eats food grown locally. That would be a major shift difficult for most of us to fathom. But like it or not, it’s a change that is not going to be a choice. It will happen regardless of how much we fight it. Really, the question is how high of prices are we willing to pay in the meantime.

Regards,
Kevin Kerr

P.S.: Of course, we wouldn’t all be forced to consume only locally grown food if the price for fuel wasn’t so astronomically high. Until we can figure out a way to produce more oil domestically, we’ll be forced to depend on imports from overseas. In most industries that isn’t such a big deal, but with oil it can be a tricky situation. We’re not really dealing with the most savory characters. Click here to read the full story of why the oil we’re importing is so expensive and how things will get worse before they get better…

Source: Rising Food Costs

According to a report by Bloomberg, cattle prices may rise 13% by the end of the year on the Chicago Mercantile Exchange and Brazil’s Bolsa de Mercadorias e Futuros. More from this story:

Not since 1996, when corn reached what was then a record $5 a bushel, have cattle been this cheap relative to their primary source of feed. Cattle are the seventh-worst performer of the 26-member UBS Bloomberg Constant Maturity Commodity Index in the past year, a time when soybeans, oil and copper jumped to records. After adjusting for inflation, cattle are down 27 percent from their 1988 peak.

“It’s pretty certain that we’ll see a decline in domestic supply in the U.S.,” Joesley Batista, chief executive officer of JBS SA, the world’s biggest beef producer, told reporters in Sao Paulo on May 15. “As a result, we’ll have price hikes and improved margins.”

Production also is dropping or failing to keep pace with demand in China, Brazil and the European Union, mostly for grain-fed beef, analysts and government data show.

“We expect meat prices, especially beef prices, to rise this year,” said Peter Weeks, chief economist at Meat & Livestock Australia, a trade group in Sydney. “We’ve already seen big increases in beef prices in China, Russia, India and throughout Southeast Asia.”

Now is a great time to invest in a livestock ETF, says Ian Davis in The Growth Stock Wire. And hog prices are set for a similar upswing to cattle prices.

“Hog farmers are not running charities. When the input costs for hog producers soar, the price of hogs must also rise. By buying hogs, we are piggybacking (excuse the pun) on the uptrend in agriculture and crude oil.

“So when the uptrend finally begins, how should we play it?

Read on how to profit when this upswing kicks in with this livestock ETF.

“When the gold price rises, jewelry gets more expensive,” says Tom Dyson in DailyWealth. It’s the same way with farm animals. When the corn price rises, livestock must get more expensive. Corn has doubled in the past 18 months, but livestock prices are still in the same range they were six years ago. They will catch up with corn.”

Tom also recommends that his readers invest in a livestock ETF.

“Two trade in London under the symbols CATL.L and HOGS.L,” says Tom. “They track the Dow Jones AIG sub-indexes for live cattle and hogs.”

“Hogs, like most commodities, went nowhere for 30 years,” says Ian Davis in The Growth Stock Wire. “In 1977, hogs sold for about 55.5 cents per pound. Today hogs sell for only about 79 cents per pound. That’s a rise of 42% in 31 years, or an annualized return of 1.1%… well below the inflation rate.

“Why are hogs so cheap? One reason may be that an overabundance of cheap corn for decades led to an oversupply of hogs. According to the Iowa Farm Outlook produced by Iowa State University, corn accounts for about 80% of hog feed. But now, the brutal combination of pricey corn, increased energy costs (for processing and shipping), and cheap hogs is wreaking havoc on hog farmers worldwide.

“This trend cannot continue. Hog farmers are not running charities. When the input costs for hog producers soar, the price of hogs must also rise. By buying hogs, we are piggybacking (excuse the pun) on the uptrend in agriculture and crude oil.”

Read on how to profit when this upswing kicks in with this livestock ETF.

Tom Dyson in DailyWealth agrees with Ian’s read on livestock: “When the gold price rises, jewelry gets more expensive. It’s the same way with farm animals. When the corn price rises, livestock must get more expensive. Corn has doubled in the past 18 months, but livestock prices are still in the same range they were six years ago. They will catch up with corn.”

Tom also recommends that his readers invest in a livestock ETF. “Two trade in London under the symbols CATL.L and HOGS.L,” says Tom. “They track the Dow Jones AIG sub-indexes for live cattle and hogs.”

The freezer belongs to Wells’ Dairy. Wells’ Dairy is America’s largest private producer of ice cream. It owns the Blue Bunny brand, but it also produces ice cream for Haagen-Dazs, Weight Watchers, and Walt Disney.

No other town in the world produces as much ice cream as they produce in Le Mars. Le Mars is the ice cream capital of the world.

Last week, I went to Iowa to research agriculture. While I was there, I passed through Le Mars and saw the Wells’ dairy plant. One of the locals I talked to knows someone who works in the freezer. He says the ice cream freezer is full of frozen pork. I asked the local why. “The Wells brothers must be speculating on a rise in pork prices,” he answered.

The Wells are making a smart move. I think we’re approaching a major bull move in hogs and cattle (although there is probably a little more liquidation to come first).

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You see, livestock farmers go broke when grain prices are high and meat prices are low. That’s the way it is right now. Take a look at this chart my colleague Ian Davis put together…

Two large hog farming concerns went bankrupt last week in Le Mars. Eric, a hog farmer I met, says hog producers are losing $40 on every pig they raise. I heard stories of farmers killing their cows and pigs at birth… They use females for breeding. They use the males for meat. Right now, it’s cheaper to kill the males than it is to fatten them up and sell them as meat.

Smithfield Foods, the largest hog producer in the nation, is cutting its herd. Earlier this year, Smithfield announced it would reduce its output of hogs by 800,000 to 1 million heads.

Eric said he knew trouble was coming and sold his hogs last year. Now he uses his hog farm as a “hog hotel.” He receives rent for taking care of another person’s hogs, but takes no risk (except the credit risk of his customer). He has an option to buy a piece of these hogs later in the year if he wishes. He says he’ll wait about six months to buy hogs… when the herd reductions start to bite.

When the gold price rises, jewelry gets more expensive. It’s the same way with farm animals. When the corn price rises, livestock must get more expensive. Corn has doubled in the past 18 months, but livestock prices are still in the same range they were six years ago. They will catch up with corn.

Here’s how you play it: Buy a livestock ETF. Two trade in London under the symbols CATL.L and HOGS.L. They track the Dow Jones AIG sub-indexes for live cattle and hogs.

Good investing,

Tom

Source: Largest Freezer in the World