Let's start with the grains because rising grain prices cause all sorts of inflation. Not only are grains the raw input to countless consumer goods, grains are also the primary foodstuff for cattle ranchers and hog finishers as they prepare their herds for slaughter. Let's start with wheat, which is being influenced not just by the falling dollar. Price is also feeling the impact of the ongoing drought in the "winter wheat zone" of the high plains of Kansas, Oklahoma and Texas.
Now take a look at the chart. Long-term support held at $7.50 and wheat looks almost certain to catapult higher very soon.
So what about soybeans? Soybeans are the one grain that I don't expect to rise in price. They will, most likely, stay rangebound through the summer. Why? Besides the fertilizer costs affecting plantings, soybeans get extra acreage for another reason: Weather. Because soybeans have a shorter growing season, they are a "fall back plan" for many farmers who struggled to get corn planted due to overly wet spring conditions.
If the upper Midwest spring turns out cool and wet, many farmers will forego corn planting and turn, instead, to soybeans. Extra supply = Lower cost.
Now, let's get back to corn. Have you ever heard the term "corn-fed beef"? Most of the best steakhouses proudly champion corn-fed beef because, frankly, its tastes a helluva lot better than grass-fed. The high sugar content of the corn gets converted into fat. The fat makes its way into the muscle and you, Mr. Steakeater, get yourself a beautiful, marbled "prime" steak. Fat cows are also desirable at slaughter because, well, they weigh more and cattle are sold by the pound. OK, so now, pretend for a moment that you're a cattle rancher. As your cattle are growing and being prepared for market (the term is "finished"), you want to feed them as much corn as they'll eat and you can afford. Corn at $7.00/bushel really cramps your business plan. Your first reaction is to control costs by thinning your herd, i.e. you sell some prematurely, before they are "finished". You might also simply want to sell some of your herd to take advantage of today's high prices.
Either way, this extra supply in the short term has actually worked to keep cattle prices from soaring at the same rate as the grains. But this is temporary. By this summer, supply will decrease as cattle that would have been coming to market just then have already been slaughtered. Are we already beginning to see this play out on the chart? Well, take a look:
Many of the same dynamics are in play in the pig market. Note the similar chart pattern of a recent breakout to new highs.
So what does all this mean? It means you'd better prepare. Maybe you're comfortable and you have all the disposable income you need. Great, but what about your sister, trying to raise her three kids on 50 grand a year? What about your neighbor or your best friend who is trying simply to make ends meet after losing a job? What can you do to help them?
You start by warning them about the coming surge in food costs brought about by quantitative easing. All of the factors discussed above, combined with soaring fuel costs, will most certainly lead to a much higher "cost of living" in the near future. The time to act is now.