|
Have you been to the grocery store lately? Have you noticed how the price of certain items has skyrocketed? Just look at the price of beef -- be it a filet mignon or just some stew meat, for a family of four on a budget, beef is all but off the table.
It’s all about supply and demand, and goes far beyond those steaks and burgers. Agricultural products, along with other commodities and raw goods, might be surging these days even as more sophisticated products get cheaper.
In May of this year, Canada reported its first case of mad cow disease, prompting the U. S. Department of Agriculture to temporarily ban Canadian beef, which accounts for 9 percent of our imported beef. The ban has been lifted for cuts of beef, but the damage has been done. Couple that lack of supply with the increased demand for U.S. beef (both here and abroad) and you have a pound of beef going for nearly $10 bucks! And we’re not talking restaurant “prime” grade, just your average choice or top grade beef. And where is all this demand coming from? Blame it on those low-carbohydrate, high-protein diets that are so popular right now, right when the seasonal demand pattern (right after Labor Day, the official end of bar-b-que season) is supposed to taper off.
And it’s not easy for cattle ranchers to increase their herd. First, it would cut into the best prices they’ve received in almost 20 years, but more importantly, cattle ranchers would have to divert heifers -- that’s what they call young cows -- from slaughter to breeding stock, wait until the heifers reach breeding age, produce calves, then feed those calves until they reach market age and size. That process can take up to 4 years, and in the meantime, expect to pay more at the market or holler “where’s the beef” at the dinner table.
That’s not all that has my shorts in a knot. It’s my shorts themselves, the cotton ones. Briefly, they’re costing a bundle, thanks to the highest cost for cotton in over 5 years, thanks in part due to increased demand from China. In fact, demand from China is behind the surge in many commodity prices. Take the lowly soybean, a ubiquitous food ingredient. China has been on a virtual buying spree, buying a record 220 million bushels since September, enriching Midwest farmers, as the price of soybeans has jumped 28 percent in the same time frame.
And it’s China’s surging economy that’s creating the demand for so many goods, raw and finished. There is so much demand for goods in that region that there is a shortage of available seafaring vessels to deliver the goods, causing an increase in ocean-shipping rates. And guess who ends up paying that tab? You and I as the manufacturers pass along those increased costs.
So while many are wringing their hands over deflation pressures, I’m popping my cork over inflation. I can’t eat my plasma screen television, which has seen a dramatic decline in price since its introduction. Zero percent financing on a new car doesn’t help me with back to school shopping. And while I would buy a nice steak for dinner, what would the rest of my family eat?
I presented my dilemma to Marc Faber, Hong Kong-based editor of The Gloom, Boom and Doom report, and author of the best selling book Tomorrow’s Gold. He predicted the 1997 Asian currency crisis and the 2000 technology bust. Now he suggests investing in things that people can touch.
Faber says that in the aftermath of a bubble and burst cycle, new leadership emerges, usually in a different asset class. He thinks stocks and U.S. equities in particular, have seen their day in the sun. Now its time for a secular or long-term revival in commodity prices. And even though we’ve seen quite a move already in many (see the aforementioned beef and cotton examples) there is still quite a bit of room to the upside.
He suggests looking at futures markets: Coffee, sugar, rubber, wheat, and even corn. Invest in those economies and companies that will benefit from this expected rise in prices. He cites China and India as countries where explosive growth (both economic and population) will fuel demand and force prices higher. In fact, one of his articles suggests having 30 to 50 percent of your investment dollars in Asia. Faber believes the dollar will decline and gold, considered an alternative to the dollar, could trade at $1,000 per ounce.
Keep in mind that there aren’t many commodity funds available, because Wall Street largely stopped covering that segment several years ago to focus on technology and other products that weren’t subject to factors beyond its control. Only sophisticated investors should consider the futures markets, and many of those investments may not get capital gains treatment, as their active, liquid contract life is less than one year.
Jewelry, coins and mining stocks are a few ways to invest in the coming gold rush. Funds that invest in emerging markets rich in natural resources may be another way of taking advantage of rising raw materials prices. If nothing else, they may provide you with the profits to buy the each member of the family a nice, juicy steak.
|
