If you want to know what’s happening in the inflation department, all you have to do is go down to your local baker and he or she will tell you that the price of raw ingredients is getting a lot more expensive. There is price inflation out there and it’s slowly building in the global marketplace. It started with food commodities like sugar, cotton and coffee, and it’s increasingly likely that it will spread to other agricultural commodities throughout 2011. In fact, it’s already happening.
We had some bad weather and that’s boosted the price of wheat and corn. But, the world is beginning to realize that there’s only so much annual production available, despite the best of technology and fertilizer applications. With the world population growing at a remarkable rate (growing 1.2% in 2009, according to the World Bank; the current population is estimated to be 6.89 billion people according to the United State Census Bureau), the demand part of the ratio is becoming just as much of a force as supply.
Right now we have precious metals trading mostly near their price highs. Oil is looking very strong based on economic growth in Asia and tight U.S. supply. Natural gas has been weak, and it is probably a good buy right now. So, for the most part, prices are rising in most of the world’s major commodities. Tell me how that won’t eventually affect your pocketbook.
I really believe in Jim Rogers’ (the famous investing partner of George Soros) contention that we are going to experience an across the board rise in inflation because of the huge increases in debt and money supplies around the world. He also believes (and is betting) that the commodity price cycle will migrate in a significant way to the agricultural sector. His reasoning is general price inflation in other commodities, population growth, income growth in developing nations, and a diminishing amount of productive land due to development. As I’ve written before in this column, Jim Rogers is even saying that Wall Street investment bankers should quit their jobs and learn to become farmers. He’s being very serious.
So, with this scenario, owning a basket of agriculture commodities seems like a good idea. At the very least, this kind of asset should prove to be a hedge against general price inflation, even if prices don’t run away in wheat, corn, soybeans, etc. Regardless, it is likely that the price of food is going to get a lot more expensive this decade and this will be the cause of a lot of strife.