Load Up the Pantry
by Brett ArendsWednesday, April 23, 2008provided by Wall Street Journal Online
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 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. Safer, too.
4 comments:
Scott Stafford sent this article to Dad at work yesterday and he printed it and brought it home to show me. It makes you think, doesn't it?
I haven't been schooled in food storage but since we bought the house I have been stocking up our "auxillary kitchen" or I suppose it is more like a pantry. Last summer I read the book "Cheapest Family in America" which is all about ways to run your household on a budget. It has really changed our financial outlook. They also gave a lot of good advice about grocery shopping. I now print out my Buy-Price-List before we go to the grocery store. Between that, searching the flyers, and using coupons, I've really been able to cut our grocery bills by a lot. Then Harvey switched to formula and it all went to pot but that's Ok. Another 6 months and he should be off formula.
I will have to read that book, it sounds like we could use it! Does the book talk about the Buy-Price-List that you use? I'd be interested in learning about that. I love using coupons and have been able to cut down our groceries with them, but think I need more information on general budgeting. I feel like we do well, but could always learn more.
I love my Buy-Price-List. It makes grocery shopping and planning so much easier. The idea is you keep track of the prices for things you buy the most. For example, I use lots of canned tomatoes in my cooking. So I kept track of when their sales prices for awhile and found out how low I could buy them for. Now when I see canned tomatoes on sale for $0.50 I buy several flats. I do the same for lots of my groceries that are non-perishable or can freeze. We really want to get a deep freezer so we can stock up on meat when it is on sale.
I'd recommend the book, though. I used it to set up an excel budget sheet. For the first few months I updated it daily, now I only do it 2-3 times a month. We now have a nice savings cushion for when things come up when before we would just have charged it.
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