Get ready for food-price spike

Donald Coxe has a useful tip for investors. The global portfolio strategist for BMO Financial Group calls it the “Rule of Page Sixteen”: Never invest on the basis of a story on Page One of the newspaper, but the one on Page 16 that is destined for page one.

The Page One story of this week was turbulence in the stock markets over concerns about exposure of banks to subprime mortgages and the global credit crunch that led central banks to flood markets with money.


The Page 16 story? Turn to last Wednesday’s Wall Street Journal, page C6 actually. Buried inside an earnings round-up is one sentence about Dean Foods Co., the largest milk processor in the United States. Second-quarter profit fell 1.6% due to higher raw milk prices, the story said. What it failed to add was that CEO Greg Engles said Dean is “being challenged by the most stubbornly inflationary dairy markets in history,” a global phenomenon that “feels like a perfect storm, and it isn’t over.”

…USDA statistics also show sharply declining inventories of wheat and coarse grains. When fuel and food prices head in the same direction for a sustained period, overall inflation follows, Mr. Coxe notes. Plus, there hasn’t been a drought in the U.S. corn belt in 15 years. Historically, that happens once every 19 years. When it comes, amid a period of grain shortages, look out for 1974-level inflation and worldwide torpor, he wrote recently.

National Post