Higher Thanksgiving Prices Show True Inflation Rate

Tuesday, 22 Nov 2011 08:40 AM

By Andrew Packer

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There’s one less thing to be grateful for this Thanksgiving: inflation.

A while back, Fed Chairman Ben Bernanke called increasing rates of inflation “transitory.” The headline numbers suggest that he’s right. Many prices have stopped rising as fast as they were a few months ago.

But your Thanksgiving dinner is telling you the true story. That’s because the average cost of all the traditional trappings will set you back an extra $6 for a family of 10 this year.

Not so bad, right? Wrong. According to the American Farm Bureau, that’s a 13 percent increase from Thanksgiving 2010.

Let’s talk turkey. Prices for the bird alone have surged 22 percent compared to last year.

Of course, this wouldn’t be so bad if it this were the first year to see such a boost in prices. But data from Urner Barry shows that Thanksgiving turkey cost 28 percent higher in 2010 than in 2009. This year’s rise isn’t a one-time event.

In short, turkey prices have risen 50 percent in the past two years.

Turkey farmers are blaming the rising prices on how much it costs to feed a turkey (and other livestock) these days. Corn makes up 60 percent to 70 percent of the cost of raising a turkey.

In addition to bad weather, 2011 marked the year that America used more corn for fuel than for food. So although corn prices have been rising, it’s not really going onto plates where it’s used most efficiently. Rather, it’s increasingly going into ethanol.

Be grateful to Congress and its love of farm subsidies and “food to fuel” programs for that one. That’s just the main course. Other Thanksgiving trappings have shown similar gains as well.

Unless you started growing crops in your backyard this spring, you can’t change much about higher prices for your Thanksgiving dinner this year.

But you have other options as an investor.

One area to potentially profit off rising food prices is in fertilizer and farm equipment.

It goes back to the cliché that the only folks who ever got rich in a gold rush were the ones selling jeans and shovels. But it’s true. As food commodity prices rise, companies like ConAgra (CAG) will face declining profit margins, but companies like fertilize producer Potash (POT) should continue to perform well.

Given the rising price of raw foodstuff, however, a commodity ETF may fit the bill. The PowerShares Agriculture Fund (DBA) tracks all the major food commodities.

Thankfully, we still live in a land of plenty. If we rid ourselves of farm subsidies and demands for fuel-inefficient ethanol, we could go back to sending our surplus abroad to feed those who aren’t so fortunate.

And if we fired any central banker who used the word “transitory” when prices of some goods have risen 50 percent in two years, we could slow the rapid rise of food prices.

© 2014 Moneynews. All rights reserved.

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