One consequence of having kids with food allergies, and who can eat basically only one grain, is that we take a hit when the price of that grain spikes. Given the role of rice as a worldwide staple for so much of the planet’s population, supply disruptions or crop failures in one part of the world can ripple through to impact the prices of grain we buy from California. For that reason, we try to maintain a prudent supply of bulk rice at our house, packed and stored securely to keep out moisture and rodents, as a hedge against price fluctuations. If the cost jumps temporarily, as it did during a panic in early 2008, we’re not over a barrel. We have some flexibility to wait the market out.
We’ve been concerned for some time now about the reckless behavior of the Federal Reserve, and its massive printing of money through “quantitative easing,” and the impact this could have on commodity prices. Oil is now over $90 per barrel, and we’re all seeing the effects at the gas pump. Agricultural commodities have been rising significantly as well; you can see that for yourself by checking prices at the Chicago Board of Trade. But here’s a more personal anecdote: a month or two back, the woman who manages the local grain elevator told me that so many farmers around here have tried to cash in on soaring commodity prices, by bringing loads of corn and soybeans to the local elevator, the elevator ran out of capacity. They actually had to turn farmers away, or send them on to other elevators. But it was obviously a problem for everybody.
Anyway, Bloomberg reports that agricultural commodities, including rice, likely won’t be coming down in price any time soon:
While gold “may go down for awhile,” the metal is “going to go over $2,000 in this decade,” [Jim] Rogers [chairman of Rogers Holdings], who owns gold, silver and rice, said today during a presentation to business executives in Chicago. Gold touched a record $1,432.50 an ounce in New York on Dec. 7. The price closed today at $1,387.
“I’d rather own rice,” Rogers said. “I’d rather own something that’s more depressed than gold.”
Agricultural commodities are “going to boom” as demand increases in developing markets, primarily in Asia, he said. All commodities will be supported by the weakening dollar, which is losing value because Federal Reserve Chairman Ben S. Bernanke is “printing money” by buying Treasuries in an effort to shore up the U.S. economy, Rogers said.
“Paper money is made of cotton, and I’m long cotton, by the way,” Rogers said. “One reason I’m long cotton is because Dr. Bernanke is out there running the printing presses as fast as he can.”
Rogers said he doesn’t own shares in U.S. companies and is short U.S. long-term treasury bonds. The Chinese renminbi may provide “almost sure profits over the next five to 10 years,” he said.
“In the future, it’s the stock broker who’s going to be driving the cabs,” Rogers said. “The smart stock brokers will learn to drive tractors, and drive them for the farmers, because the farmers will have the money.”
Needless to say, I’m grateful that Mrs. Yeoman Farmer laid in a good supply of rice at last year’s prices. We may try to get some more at our next co-op order. If there is some grain or other commodity that your family depends on, I’d recommend you think about investing in a good supply of it now while the prices are relatively reasonable. It wouldn’t surprise me if coffee prices, for example, increase significantly; coffee is produced almost exclusively overseas, and its prices can therefore be influenced by currency valuations. I personally can’t live without coffee, and for that reason have invested in a prudent supply from Sam’s Club. For most of us, this kind of practical move makes a lot more sense than trying to buy a commodity contract on the Chicago Board of Trade. There’s really no downside, other than the lost opportunity to invest the money in something else. Commodity prices certainly aren’t going to be decreasing. And we’re eventually going to consume these stored products anyway.
And for those of you who don’t yet have your own farm: note well the final portion of the Bloomberg excerpt above.