- I don't want to alarm anybody, but maybe it's time for
Americans to start stockpiling food.
- No, this is not a drill.
- You've seen the TV footage of food riots in parts of
the developing world. Yes, they're a long way away from the U.S. But most
foodstuffs operate in a global market. When the cost of wheat soars in
Asia, it will do the same here.
- Reality: Food prices are already rising here much faster
than the returns you are likely to get from keeping your money in a bank
or money-market fund. And there are very good reasons to believe prices
on the shelves are about to start rising a lot faster.
- "Load up the pantry," says Manu Daftary, one
of Wall Street's top investors and the manager of the <http://online.wsj.com/fund/page/fund_snapshot.html?mod=art_fund&symbol=quagx>Quaker
Strategic Growth mutual fund. "I think prices are going higher. People
are too complacent. They think it isn't going to happen here. But I don't
know how the food companies can absorb higher costs." (Full disclosure:
I am an investor in Quaker Strategic)
- Stocking up on food may not replace your long-term investments,
but it may make a sensible home for some of your shorter-term cash. Do
the math. If you keep your standby cash in a money-market fund you'll be
lucky to get a 2.5% interest rate. Even the best one-year certificate of
deposit you can find is only going to pay you about 4.1%, according to
Bankrate.com. And those yields are before tax.
- Meanwhile the most recent government data shows food
inflation for the average American household is now running at 4.5% a year.
- And some prices are rising even more quickly. The latest
data show cereal prices rising by more than 8% a year. Both flour and rice
are up more than 13%. Milk, cheese, bananas and even peanut butter: They're
all up by more than 10%. Eggs have rocketed up 30% in a year. Ground beef
prices are up 4.8% and chicken by 5.4%.
- These are trends that have been in place for some time.
- And if you are hoping they will pass, here's the bad
news: They may actually accelerate.
- The reason? The prices of many underlying raw materials
have risen much more quickly still. Wheat prices, for example, have roughly
tripled in the past three years.
- Sooner or later, the food companies are going to have
to pass those costs on. Kraft saw its raw material costs soar by about
$1.25 billion last year, squeezing profit margins. The company recently
warned that higher prices are here to stay. Last month the chief executive
of General Mills, Kendall Powell, made a similar point.
- The main reason for rising prices, of course, is the
surge in demand from China and India. Hundreds of millions of people are
joining the middle class each year, and that means they want to eat more
and better food.
- A secondary reason has been the growing demand for ethanol
as a fuel additive. That's soaking up some of the corn supply.
- You can't easily stock up on perishables like eggs or
milk. But other products will keep. Among them: Dried pasta, rice, cereals,
and cans of everything from tuna fish to fruit and vegetables. The kicker:
You should also save money by buying them in bulk.
- If this seems a stretch, ponder this: The emerging bull
market in agricultural products is following in the footsteps of oil. A
few years ago, many Americans hoped $2 gas was a temporary spike. Now it's
the rosy memory of a bygone age.
- The good news is that it's easier to store Cap'n Crunch
or cans of Starkist in your home than it is to store lots of gasoline.
- Write to Brett Arends at <mailto:email@example.com>firstname.lastname@example.org