What can Cinnamon Toast Crunch tell us about commodity prices and inflation?

Commodity prices have made significant moves over the past few months. Soybean prices rose 5% in June. Wheat prices went up 20% and corn prices also up 22%. Those moves may seem like gigantic swings but looking at historical trends, food commodity prices are volatile, and 10%-20% moves happen frequently.

The Fed doesn’t seem too concerned with inflation however. “We have it all under control,” said Federal Reserve Chairman Ben Bernanke. The Consumer Price Index has been on a slow pace below 2% per year.

Sugar however is thought to be a better measure of price inflation or deflation.  Supply and demand is seen by many experts to be more stable and the crops aren’t as vulnerable to weather disruptions such as droughts or floods.

Jeff Clark from Thegrowthstockwire.com raised an interesting point when looking at a technical chart of sugar prices:

“Sugar broke out to the upside of a bullish falling-wedge pattern (the blue lines) in early June. But after a 20% pop higher last month, sugar looks poised to break to the upside of an ascending-triangle pattern (the red lines).

Past performance is not necessarily indicative of future results.

As sugar moves higher, you can count on most other commodities to do the same. That’s going to hurt your wallet at the grocery store… And it’s going to hurt the profit margins of restaurants and food-service companies that don’t pass the price increases onto consumers.”

Which way have you seen prices going at your local super market? Are you stocking up on sugary snacks? Let us know what you think.

Email us at  iinvest@chesapeakeinvestment.com.

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Chesapeake Investment Services
Managed Futures Specialists