On Tour In America’s Heartland
by Tom Dyson
November 6, 2006
In 1974, President Gerald Ford declared inflation “public enemy number one,” called the American public to “whip” it, and started a political campaign against it.
The campaign was called “Whip Inflation Now!” and people were encouraged to wear “WIN” buttons. Skeptics wore the badges upside down, NIM for “No Immediate Miracles.”
After a scare in the late '60s, the government had announced inflation was dead in 1972. But by 1973 it was bouncing back and by the winter of 1974, it was touching 11%.
Inflation died again in 1976 and then rose to 15% in early 1980, when it finally did die.
In 1965, it only cost the average American worker $1.26 to pick up a dozen eggs and gallon of milk on the way home from work. Fifteen year’s later, that grocery run doubled to more than $3. Over this time, the government’s index of inflation – the CPI - increased 191%.
Historians call the period from 1965 to 1980, “The Great Inflation.” Prices took off in three phases and, in each phase, different investments came out on top. The first phase started in 1965 and ended in 1970 with a 23% rise in prices. In this first phase short-term Treasury bills rose 30% and beat every other major asset class except silver. (Gold was not trading freely yet.)
In the middle phase, soft commodities performed the best. Corn (291%), soybeans (210%), wheat (257%), sugar (400%), cocoa (241%), logs (125%), and palm oil (268%) were the big winners.
In the final phase--from 1977 to early 1980--gold was the top performer, returning 693%. Inflation over the same period was about 60%.
I think that, for the first time since 1980, inflation is coming back. And, as soft commodities played such an important role last time, I’ve been expecting them to take off again.
Thing is, corn, wheat, cattle, and the other agricultural commodities have gone nowhere in recent years... while precious metals and energy have had a few great years. This seems to be changing now. Agricultural commodities are shooting up...
|
Past Week's High |
September Low |
Potential
1-Month Return |
Soybeans |
$6.40 |
$5.37 |
19% |
Corn |
$3.34 |
$2.36 |
42% |
Oats |
$2.41 |
$1.89 |
28% |
Wheat |
$5.41 |
$3.87 |
40% |
Live Cattle |
$91.35 |
$88.90 |
3% |
Lean Hogs |
$64.95 |
$59.30 |
10% |
|
These moves have really piqued my attention. I’ve been expecting a jump in agriculture prices for a while now, for several reasons. One, they’ve been overlooked by investors, so the prices haven’t gone anywhere in years. Two, crops are an excellent way to invest in water and I think water is more valuable than people think. Three, all the costs of farming have risen, so it was only a matter of time before the crop prices also rose. And finally, all the new money flowing into commodity funds had to reach agriculture sooner or later.
To get to the bottom of all this, I went to Sioux County, Iowa last week and found out what’s really going on.
Sioux County is one of the most important places for agriculture in America. It's the fifth-largest hog-producing county in America and the second-largest cattle-producing county. There’s a world-famous genetics lab there, half a dozen ethanol plants within a 50-mile radius and, of course, a sea of corn stretching for miles in every direction.
Stay tuned for what I found out...
Good investing,
Tom
