There’s good news and bad news about the next big rally. It’s in food, also known as agriculture. So if you’re only consuming food, this isn’t such good news.
However, if you learn to “invest in food” by buying commodity ETFs (exchange-traded funds), etc., then it’s not such bad news at all because you can hedge your grocery bill while making a tidy profit, too.
Most of America watches oil and gasoline prices fairly regularly but what they don’t watch is where food prices are going. They realize when prices are being raised on them but they don’t realize when a new “food rally” is about to begin so they can prepare for it.
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It reminds me of the old Bible story in Genesis. God allows Joseph to interpret a dream. The interpretation says that there’s going to be seven “good years” of plenty followed by seven years of famine.
God instructed Joseph to put back a fifth (20 percent) of the wheat crop in each of the seven good years and it would be the answer to taking them through the seven years of famine.
In essence, God showed him what was to come and he “cornered the wheat market.” He collected something when it was plentiful when no one was aware that it needed to be cherished and stored away. Later on, people literally traded all kinds of things that they owned in exchange for some wheat in those seven years of famine.
Well, today we have our own versions of that. We may not experience an outright famine here in the United States but we have times when food is plentiful and times when food isn't so plentiful. Since we don’t run out, we don’t always see it that way. But many times when the price goes up at the grocery store, it’s a result of a crop that is less plentiful than it was in previous years.
We’re about to go back through one of those times where supplies of crops are tight enough to run up the price once again. That’s bad if you’re only a consumer but it’s going to be a great, strong uptrend for “investors in food” through commodity ETFs.
So what’s going to be going up? Specifically, wheat, corn and soybeans. More things may go up, but the supply is shrinking again for these crops — yet the demand isn’t decreasing, so therefore the price will increase quite substantially throughout 2012 as the stockpiles lessen.
But let’s talk more specifics. For instance, corn reserves here in the United States are at a 16-year low because farmers can’t keep pace with the demand for food, livestock and biofuel.
Then there’s wheat. The USDA just cut its forecast for world wheat stockpiles by 209.6 metric tons. And don’t forget that there’s more surging demand from Asia for grains than ever before. So a smaller supply and increasing demand will continue to cause wheat prices to soar.
On top of this, the feed demand for wheat is picking up. More farmers are replacing corn feed with wheat. In fact, this year the global demand for wheat in livestock will reach a record of 131.06 million tons, according to the USDA.
Then there’s soybeans. Soybean reserves have dropped to a three-year low of 57.3 million tons. Hot, dry weather for South America’s soybean crops is only expected to worsen the situation this year. In fact, they estimate that it could be worse than the situation three years ago which drove up soybean prices 50 percent to 80 percent in the two soybean rallies that followed.
Therefore, it’s estimated that soybean production may fall by as much as 19 million tons lower than last year. How big is that? Only the biggest year-over-year drop since 1965.
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So look for the price of your cereals, cooking oils, sugar and other corn, wheat and soy related products to be heading higher throughout 2012 and possibly beyond.
Again, it’s bad news for the consumer — but not bad news for the investor-consumer.
Prepare to take advantage of this uptrend in food that’s coming to a grocery store near you. It’s already begun in some places. World food prices have moved higher for two months back to back lately.
So we could see prices head higher here in the United States very soon in some places.
About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.
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