Is Global Warming the Culprit for Higher Grocery Bills?

Corn prices moved up on Thursday, after the U.S. Agriculture Department reported that the estimated corn surplus in 2012 would be less than anticipated, according to USA Today.

The USDA cited weather patterns—too much rain—as a reason for why farmers have been unable to plant enough corn this season.

Unfortunately for U.S. consumers, the rise in the price of corn might have an affect on just about every item in the grocery market. Many processed foods contain high fructose corn syrup (a corn derivative), while the price of meat may spike as it becomes more expensive to feed cattle.

The USDA predicts that food will rise in price this year by 3 to 4%. Fuel could also increase in price as well, as ethanol additives become more expensive.

The news of higher food prices squashes Ben Bernanke's "transitory" inflation thesis. Obviously, the Chairman of the Federal Reserve cannot be blamed for weather patterns, but his expectation that commodity prices would "moderate" over the coming months appears to be faltering.

With consumers paying more at the pump and the grocery store, and the labor market failing to provide jobs for millions of Americans, it may start to feel like the 1970s all over again.

Action Items

Bullish: Traders who believe that food prices will remain high might want to consider the following trades:

• Buy Teucrium Corn Fund (NYSE: CORN). CORN attempts to return the value corresponding to the price of corn. If corn rallies in price, CORN may as well.
• Buy PowerShares DB Agriculture Double Long ETN (NYSE: DAG) is a leveraged ETN. It might provide big returns if agricultural commodities rally sharply.

Bearish: Traders who believe that the USDA's negative forecast is over exaggerated may consider taking positions in the following:

• PowerShares DB Agriculture Double Short ETN (NYSE: AGA) is a leveraged short ETN. If agricultural commodities decrease in price, AGA may rally.
• PowerShares DB US Dollar Bullish Index (NYSE: UUP) is a long play on the U.S. dollar. If commodity prices decline, inflation expectations may recede as well. That might be good for the U.S. dollar and UUP.

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