Agribusiness Investing: What Are the Reactions of Inflation?

For several reasons, inflation has reared its ugly head in the grocery store.  Explanations from the Fed’s quantitative easing programs to severe droughts around the world have been blamed.  Last year, Russia (NYSE:RSX) even placed a ban on its wheat exports to ensure enough supply for themselves.

There’s no doubt among consumers and investors that prices are going up.  Cotton (NYSE:BAL) has jumped to record highs, and oil (NYSE:USO) has found a firm footing above $100 a barrel.  Earlier this week, a ShadowStats.com article made headlines that according to pre-1980 CPI calculations, inflation is close to 10%.

As commodity prices continue to increase, how are companies and consumers reacting to inflation pressure?

Hershey (NYSE:HSY), one of the most recognizable names on the planet, has announced the company will be raising prices by 10% on all products.  The company expects to see the financial benefits of the price increases in 2012.

Kraft (NYSE:KFT) recently raised its price on Maxwell House coffee by 70 cents per pound, which represents a 22% increase.  Smuckers (NYSE:SJM), also raised the price on its coffee brand Folgers by 10%.

Other companies have been a little more crafty in hiding inflation from the consumer through means of smaller packages at the same or higher price.  Reese’s peanut butter cups are decreasing 37% in size, and Chicken of the Sea Tuna will also be 17% lighter.  Heinz Ketchup (NYSE:HNZ) will be reducing their standard ketchup bottles by 11%.

Consumers are seeing the changes in grocery stores and their wallets.  Last Friday during a speech, NY Fed President William Dudley tried to assure audience members that inflation was under control.  He cited that although food and energy may be rising, other prices such as the iPad 2 are falling.  An audience member fired back with you can’t eat an iPad.

Investors should watch for a repeat of summer 2008, when gas prices were above $4 a gallon.  Consumers reduced shopping trips and looked for value.  The new hit tv show on TLC called “Extreme Couponing” may already be a sign of how far consumers will have to go to afford food.

Do you want to profit from commodities and agribusiness? Get a free copy of our highly acclaimed Commodities Premium Investment Newsletter by Chicago Mercantile Exchange commentator Jordan Roy-Byrne CMT.

Disclosure: No positions.

More from The Cheat Sheet