This is going to get nasty.
Two ways to play the food sellers/packaged food companies:
1) short them as part of a pair trade with an uncorrelated long (technology?) or for the gutsy
2) paired with a long of some commodity. Double barreled fun.
Of course this high-octane approach would open the possibility of being guaranteed a double bladed loss should commodities decline.
From the Wall Street Journal:
Packagers and Supermarkets Pressured to Pass Along Rising Costs, Even as Consumers Pinch Pennies
An inflationary tide is beginning to ripple through America's supermarkets and restaurants, threatening to end the tamest year of food pricing in nearly two decades.
Prices of staples including milk, beef, coffee, cocoa and sugar have risen sharply in recent months. And food makers and retailers including McDonald's Corp., Kellogg Co. and Kroger Co. have begun to signal that they'll try to make consumers shoulder more of the higher costs for ingredients.
For food executives, how quickly to pass along higher costs presents difficult choices. Missteps could be costly when the economy remains weak. Many Americans, nervous about high unemployment, have pledged allegiance to their pennies and are willing to trade down on brands, switch supermarkets, opt for Burger King over Applebee's, or stop dining out altogether to save money.
"The big challenge will be, how much can we swallow and how much can we pass along?" said Jack Brown, chief executive of Stater Bros. Markets, a 167-store grocery chain in southern California.
Stater Bros. has seen the prices it pays for cereal rise 5% in recent months. The chain has passed about half the increase on to consumers while making up for the rest by trimming other expenses, such as what it spends on cell phones and delivery truck tires.See also yesterday's "UBS: "Betting against companies hit by rising raw material prices" (ANF; AEO; GPS) K; GIS; KFT" or last week's "Inflation, It's What's for Breakfast: "USDA: Food inflation to accelerate into 2011" (GIS; SLE; SFD)"
Kraft Foods Inc., Sara Lee Corp. and General Mills Inc. already have said they'll raise prices on certain items. Starbucks Corp. backtracked on an August announcement that it would hold coffee prices steady, saying in September it would boost prices of larger and hard-to-make drinks. This week, cereal maker Kellogg hinted that it will be raising prices, without disclosing specifics....MORE
Some more posts:
The Breakfast Portfolio: "Finding value in undervalued commodities "
What Google says about inflation (GOOG)
Inflation has yet to hit the vital water market
Climateer Investing: Three Month Asset Class Performance Chart
Days of Cheap Food Are Over
"Is TIAA-CREF Investing In Farmland A Harbinger Of The Next Asset Bubble?"
"Is agriculture the next big investment thing?" (DBA; FUD; MOO; RJA)
"Wall Street Eyes Farmland"
Hedge Funds Buying Farmland
The hedge fund manager who bought a farm
Marc Faber: "'Buy farmland and gold,' advises Dr Doom"
Société Générale's Dylan Grice: "Higher crop prices 'permanent'" (ADM; SYT)
"Food for Thought on Agricultural Stocks" (DBA; MOO; MON; POT)
Junior Potash Plays: (API.TO; KCL.TO; AMZ.TSXV; EPO.TSXV)
The End of Cheap Food- What was Old is New Again AND: Profiting from Politics
Green Acres is the Place to Be: "The UK farmland grab"
The Last Holdout: "U.S. farmland fetches top dollar despite recession"
Farm visits can ease mental illness
Finally a story from John Kenneth Galbraith:
This tale is said to be told by John Kenneth Galbraith on himself. As a boy he lived on a farm in Canada. On the adjoining farm, lived a girl he was fond of. One day as they sat together on the top rail of the cattle pen they watched a bull servicing a cow. Galbraith turned to the girl, with what he hoped was a suggestive look, saying, "That looks like it would be fun." She replied, "Well.... She’s your cow."We have a lot, some going back to 2007, use the search blog box with some combination of keywords:
food, inflation, commodities, softs, farm, agriculture etc.