Food Inflation May Rise to 3% to 4% in 2013 After Drought

There a myriad of reasons why we will have food inflation, in addition to the current drought.  There are two other reasons few understand:  the bankruptcies of MF Global and Peregrine--and subsequent theft of client segregated funds.  Many of these clients included farmers hedging their crops and livestock.  With their funds dissipated from the fraud, the crop and feed shortages will become more acute going forward.  It takes money to grow crops:  for seed, fertilizer, labor, machinery, water, and land.  No money, no honey.


http://www.bloomberg.com/news/2012-07-25/food-inflation-may-rise-to-3-to-4-in-2013-after-drought-1-.html

The secret deaths of bees

http://www.guardian.co.uk/environment/2010/may/02/food-fear-mystery-beehives-collapse

If true, this could cause the next dust bowl.

Congress Created Dust Bowl

"Congress Created Dust Bowl"

That was the slogan on literally dozens of signs on both sides of Interstate 5, north of Los Angeles and south of Sacramento. The high winds of California's Central Valley created dust storms which reduced visibility to virtually zero last Monday, as on acre after hectare sat empty farm fields and orchards. Images of John Steinbeck's "The Grapes of Wrath" came to mind. Apparently, the drought and recession are taking their toll on farmers, as they can no longer afford fertilizer and water. I've read irrigated water costs $600 an acre now, up from $30 an acre pre-drought.

We had plenty of rain (and snow) earlier in 2009, but it has not made up for the previous 3 years of drought. With Las Vegas and southern California's appetite for water increasing annually, northern California and Nevada (the Sierra Nevada) just do not have enough water to distribute to their southerly neighbors.

What will this lead to? California is considered the world's bread basket, feeding half of the US, and a quarter of the world's population. If indeed farmers are letting their crops die and laying idle farm fields statewide, expect to see price increases in your grocery isles. Additionally, a weakened dollar will also increase commodity prices in the COMEX exchange. This will inevitably drive food prices up.

Michelle Obama and her daughters planting seeds for the White House garden wasn't just a Kodak moment--it was an omen.

Another reason to be bullish on gold

First, the Fed has dropped short-term interest rates down to 0%. Then, the Treasury is injecting up to $7.4 trillion in additional capital, literally out of thin air, to support ailing (and failing) industries.

Capacity issues are creeping in, as farmers lose crops due to drought, mines dry up, and exploration for new resources are stalled due to the financial crisis. All these factors point to inflation. However, fears of deflation rule the day.

Yet, gold prices keep trending up. Shares of gold mining companies have shot up even more--up 100% in some cases.

The markets are betting on deflation of asset values, including equities and real estate. Hence, both are likely to remain low for some time. And crude oil and other energy sectors have been battered. Agreed.

But looking forward (instead of through the rearview mirror), oil won't remain below $40/barrel forever. And when that dynamic reverses course, inflation will rule of the day.

And today, we had other things to worry about. Palestinians are shooting rockets at the Israeli border. Pakistani troops have abandoned the Afghanistan border and re-aligning themselves along the Indian border. The price of gold shot up over $20/oz within minutes of the news.

Today, we found out gold is not only a great hedge against inflation, it is also the currency of last resort in times of financial and geopolitical crises.