06/15/09 Gaithersburg, Maryland Inflation – rising prices, or a drop in the purchasing power of the dollar – will soon rise to the very top of economic concerns. I can’t understand why there are pundits who insist we can’t have inflation while the economy is weak. There are plenty of examples of weak economies with high inflation. After all, I don’t think they are hitting on all cylinders in Zimbabwe, where inflation is thousands of percent.
Soybean prices hit a nine-month high of $12.50 a bushel. The Department of Agriculture said that inventories would drop to only 110 million bushels – the lowest level since 1976-77, when inventories hit 103 million bushels. There were about 2 billion fewer mouths on the planet then. At today’s 32-year low, we can eat through that stockpile in about two weeks. Not a lot room for error; hence, the nine-month high in prices.
We have a similar tight market in corn. In corn, we’re down to about a four-week supply, the lowest in six years. Corn has rallied also. In fact, the prices of a variety of grains are now at levels not seen since the last food crisis:
During the last food crisis, rice traded for $1,000 a ton and there were riots in different parts of the world. The financial crisis took the headlines away from the unfolding food crisis, but now we are looking at act II.
Chris Mayer
Chris Mayer is managing editor of the Capital and Crisis and Mayer’s Special Situations newsletters. Graduating magna cum laude with a degree in finance and an MBA from the University of Maryland, he began his business career as a corporate banker. Mayer left the banking industry after ten years and signed on with Agora Financial. His book, Invest Like a Dealmaker, Secrets of a Former Banking Insider, documents his ability to analyze macro issues and micro investment opportunities to produce an exceptional long-term track record of winning ideas.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
“I can’t understand why there are pundits who insist we can’t have inflation while the economy is weak.”
Those pundits would probably say that you are confusing scarcity with monetary inflation, a distinction worth making IMHO. Thus even while money/credit is contracting and dollar value increasing, scarcity can be an overriding price driver for necessities like food.
If you wish to prove inflation, best look for evidence of money/credit expansion. Happy hunting.
Where do you get your info on corn stocks ? ( available supply) You couldn’t even haul all of the corn, (in the bin or elevators) in four weeks let alone eat it up ! Down 19.4 cents today, that’s a shortage ! It will go down in price but not from a shortage, but because some traders are messing with the market.
Hmm, what will happen in 5-10 years if oil supply goes down down down =)