07Apr10:57 amEST

Food Inflation: The Worst is Yet to Come

While I have no desire to stoke fear on this (or any) platform, I also recognize that readers are clicking in because they believe I call it like I see it. 

And when we gauge the latest U.S. Dollar rally beginning to slip lower, coupled with the tight multi-week consolidation on the DBA (which is an ETF basket of agricultural or soft commodities, namely corn, soybeans, sugar, coffee, cocoa) weekly chart, below, it is becoming an increasingly more expensive endeavor to head to the grocery store. 

Over the last decade, despite some sharp rallies here and there, the soft commodity space has been in a potent downtrend, defying The-Fed-is-sparking-inflation theories as the secular deflationary forces were in control. But that seems to be be changing, or at least the threat is there for another inflationary head-fake higher yet, first, before deflation rears its head again.

Whichever way it is in this particular cycle, the DBA bull flag, highlighted below, is occurring at the 200-period weekly moving average (yellow line), which is a spot you would normally expect bear market rallies to fail miserably and roll back over to fresh lows.

But the bull flag pattern in this context illustrates that price is becoming acclimated to these levels without an overwhelming supply of sellers, marking a departure from the previous sell-the-rips regime of the softs. 

Going forward, I expect rising soft commodity prices to have a steady impact in the grocery stores across the country before we reach a tipping point for the consumer. Until then, JO is the coffee ETN to play an individual soft in this ETF, and CORN is another play as well. 

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