Long term food - Great investment (While we are waiting for the fed..)

The financial market, based on the low volume, is waiting for the Fed lower interest rates. Until then, here is a discussion about precious metals and food. I think food is a better investment for a person who does not normally deal in precious metals on a week to week basis.

I’m practical about precious metals. I think they are fine investments and if you want to own them, that’s great. I’m not knocking them. However, I’m not on the bandwagon that they are going to hit 2000 dollars or more. That’s the same type of thinking we had when the real estate boom.

Food, on the other hand, has not traditionally been a store of value in the 20th century. The ability to produce food has skyrocketed with the introduction of petrochemical farming. Petrochemical farming is farming that uses petrochemicals to produce the food. This includes the tractors, the trucks, the fertilizer, the insectides, and the other items that directly depend on oil to be in existence.

In addition to the petrochemical farming boom, there was the boom in corporate farming. This form of farming drove the cost of food down and increased it’s availability through volume production and distribution. The efficiencies gained in corporate farming force more people into the cities to seek employment. They put, with the help of the banking industry, the family farmer out of business.

So, for most of our lifetimes, food has been extremely inexpensive and available. This is why, unlike our forefathers and Mormons, we do not store food in our homes anymore. In the recent past, our grandparents and great grandparents had large stores of food available in their homes. This is because they remembered the times when food was not available and had learned that you need to have a store of food for the bad times.

Yet, in today’s culture, this is looked at as outrageous and potentially dangerous behavior. Only extremists, such as religious fanatics or whacked out survivalists, kept food stored for more than about a week. Why would anyone keep food around? Food was always available at the supermarket or fast food joint at a low price just around the corner. You could drive over and pick up as much as you wanted day or night.

The behavior, molded by the corporate farmers and food producers, is based on efficiency. It’s more efficient for the corporations to keep the minimum amount of food in the pipeline, so they could charge the actual price of product plus (outrageous?) profit. The constant demand for food allowed them to lower their cost of transportation and storage. If the consumers did not consume food at a steady rate, they had no way to assure a certain amount of profit to their shareholders. Therefore, they molded the behaviors of the consumers to make them constantly demand food products instead of storing them.

The availability of reliable transportation, refrigeration, and international commerce has allowed corporate farmers in other parts of the world to supply food to the United States when the growing season is out of season. The seasonality of our diet has reduced to the point that it is possible to get oranges in the dead of winter.

The underlying assumption of system is the availability of petrochemicals. Every portion of this system depends on petrochemicals: from planting to harvesting to processing, distribution, and even purchasing. The system is highly dependant on the price of oil. It effects every portion of the food chain. The higher the cost of oil, the more your food costs.

If you look at the price of oil and the price of food, you see a small lag, but the prices move in harmony. The price of food goes up with the price of oil. In the last several years, we have seen a ~25% increase in the price of oil. This has increased the cost of food proportionality. The price of fresh items is the most effected by the increase of oil costs, because they are often shipped from other parts of the world to meet our needs during the seasonal changes. The processed foods can hid the oil hikes easier, as long as they do not stay in place for longer than a growing season.

The investment into food has now become a good investment. With prices increasing at 25% clip, the food that was purchased several years ago has had an appreciation of 25%. Additionally, you now have a store of consumables that allow you to be more flexible with your money. You can switch to your stored food instead of having to purchase items from the store. It also provides a cushion for bad times, when the economy is fine but you are unable to purchase food, such as job losses, weather, or medical problems.

Overall, food is a good investment. I think it’s better than gold. Of course, you should diversify. A little gold, a couple years food, some silver, some dollars, some investments, makes a sound mix to me. However, that’s for a financial advisor to help you with. I’m not a financial advisor, so don’t think my commentary is financial advice.