The Federal Reserve cut both its federal funds rate and the discount window rate a generous half percentage point yesterday, in an effort to prop up a cratering U.S. real estate market, and to prevent the economy from slipping into recession.
At the same time, the Fed noted that, "Some inflation risks remain, and it will continue to monitor inflation developments carefully."
Heck, Fed Chairman Ben Bernanke doesn't need to look farther than his morning cup of coffee to see inflation at work. Prices are on the launch pad, up more than 6% just this past Monday!
In fact, just about everything in your morning breakfast is only going to get more expensive, as agricultural commodities, led by wheat and soybeans, get swept up in a rip-roaring bull market.
The good news is there are ways you can play the coming move that will perk up your portfolio with potential profits. I'll get to those in a bit. First …
What's Brewing Behind the
Scene in Coffee Beans?
Last week, the International Coffee Organization (ICO) upwardly revised its forecast of 2007-2008 global coffee consumption to at least 122 million bags, a rise of 1.4% from 120.3 million bags in 2006.
The ICO projected that coffee production would rise at the same time. However, that forecast depended on Brazil, the world's biggest producer, having a bumper crop.
On Monday, Brazil dropped a bombshell: It said its main coffee-growing region is suffering a severe drought, one that will likely hurt the harvest.
As a result, Brazil will reap 2.2 million metric tonnes of coffee this calendar year, down from 2.59 million in 2006, according to the Brazilian Institute of Geography and Statistics.
Brazil's coffee crop has gotten punished by uncooperative weather. Brazil produces both arabica and robusta coffee beans. About two-thirds of the world's coffee is arabica, which is preferred by coffeehouse operators including Seattle-based Starbucks. Robusta beans are used in instant coffee, espresso and low-cost blends.
To make matters worse, Vietnam, another big coffee producer, should see its harvest of robusta beans fall by about 3.2% to 18 million bags in the 2007-2008 crop year.
Add it all up, and you can see why coffee prices took off like a rocket on Monday.
Coffee isn't the only commodity that's roaring higher. Indeed, over the last month, it's only the ninth-best performing commodity!
Wheat: Amber Waves of Profit
Wheat is the real winner in the commodities arena. It's risen more than 26% in the last month … a whopping 81% in the past six months … and it has more than doubled in the past year.
Will that outperformance continue? I sure think so. Let's look at what's happening in various countries around the world …
South Africa, the third biggest wheat producer in Africa and normally an exporter of the grain, may import as much as 1.5 million metric tonnes of wheat in the 2007-08 marketing year. That's the view of Grain SA, a Bothaville, South Africa-based farmers' group. Reason: Too many farmers planted corn on expectations that it would be more profitable, and what was left was slashed by drought.
Egypt, the largest producer of wheat in Africa, has also been ravaged by drought. It is now the second-biggest importer after Brazil, recently buying 470,000 metric tonnes of U.S. and Russian wheat.
Australia was supposed to be the world's second-largest wheat exporter, according to the USDA. However, Australia produced just 9.9 million tons last year after drought devastated the crop, and the dry weather has continued this year. The Australian Bureau of Agricultural and Resource Economics just cut its forecast on this year's crop, saying the harvest will be just 15.5 million tons, down 31% from its June estimate.
India has bought 1.3 million tons of wheat in the past two months, trying to shore up depleted stockpiles. India's Agriculture Minister, Sharad Pawar, said in July that India may have to import five million tons of the grain by June 2008, and needs one million tons a month for welfare plans.
Pakistan said it plans to import one million metric tonnes to boost inventories, up from just 140,000 tons last year.
You get the picture — nations are lining up to buy wheat around the world. The same goes for global soybean and meat prices. Of course, there's one country I haven't mentioned yet …
China: Epicenter of an Economic Earthquake
That Is Reshaping Global Markets
China has seen its harvest hammered by drought. At the same time, its citizens are becoming more affluent and can afford to eat more and better food.
That's why, in just the first half of this year, food prices in China rose by an average of 7.6%, led by a 70% jump in the price of pork. Beef jumped 49% … fresh vegetables sprouted 22.5% higher … and eggs rose a sizzling 27.9%.
This isn't a one-month trend. This is a fundamental shift in global markets!
We're used to food prices being cheap, but now we're in competition with China, India and other emerging markets for the food on our tables. They have more and more of our money every day, and they will bid up the price of just about everything at the supermarket.
When you add in other NEW sources of demand — such as ethanol and other biofuels — you can see why prices could go much, much higher for a long time.
The smart money is starting to get interested. Commodity guru Jim Rogers has said that soft commodities are where the biggest gains will be made over the next five to 10 years.
And even Rogers could be playing it conservatively. Christopher Wyke, from fund manager Schroders, was recently quoted as saying …
"After coming out of a quarter-century bear market in agricultural and soft commodity prices, we are now at year one of a 20-year bull market."How to Perk Up Your
Own Profit Potential
With coffee prices percolating higher, you might want to buy one of the companies that will be brewing up profits.
Starbucks is the big daddy of coffee, of course, and with 13,000 coffee shops in more than 35 countries, the sun never sets on its revenue stream.
It will probably be able to pass along price hikes despite griping from consumers, because millions of its customers need their daily fix. And by some metrics, this king of the coffee shops still looks cheap.
Another taster's choice would be Green Mountain Roasters. It roasts about 100 varieties of arabica coffee, which it sells to more than 8,000 wholesale customers including supermarkets, convenience stores, and office coffee services.
source : http://www.moneyandmarkets.com/press...=949&cat_id=6&
Nice write up ... Speed++
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