The latest recovery for exchange traded funds (ETFs) may be facing another challenge. There have been massive price surges in consumer foods over the past year (10%) and this is a result of the cost of global finished consumer foods. This past year corn has doubled, while grain is up 70%. Soy beans, animal feed and fertilizer are also up. Daniel M. Harrison for TheStreet.com claims the reason for food inflation is a growing urban middle class in emerging-market countries along with increased mandates for the use of clean fuels such as ethanol, made from corn or sugar cane.
Investors have enjoyed gains in ETFs such as iShares MSCI Emerging Markets (EEM), iShares MSCI Brazil (EWZ) and iShares MSCI Taiwan (EWT) over the past year, but these growing economies could be raising costs globally. Cheap labor has kept global inflation in check, but costs are no longer falling. One main way of exporting inflation is through food products.
Major food manufacturer’s such as have been hit hard, as has Coca-Cola (KO) and Pepsi (PEP). This has resulted in smaller packaging and higher prices to cover costs. Larger food retailers Costco (COST) and Wal-Mart (WMT) have been able to weather the decreased margins while still offering low prices to the public. Mexico recently had to impose a price cap on tortillas after the prices rose so much.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.