where's the bacon

The financial markets smell like breakfast

February 18, 2014
February 18, 2014

A seasoned observer of financial markets might say they have a certain flavor right now.

And that flavor is breakfast.

Prices for key commodities that form the basis of a balanced breakfast are sizzling. Behold:

Coffee prices percolated steadily higher this year, up more than 35%, thanks to a drought in Brazil, the world’s largest producer.

Oats—the main ingredient in breakfast cereals such as General Mills’ Cheerios—are up 18% year, thanks to logistical issues that are keeping Canadian railroads from getting a record harvest to market.

Prices for lean hogs—a key gauge of bacon prices after the demise of the much-loved contract for pork bellies—are up roughly 13%, for a really, really disgusting reason.

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We could go on. Orange juice futures are up about 6%. (If you’re a hot cocoa drinker, cocoa prices are up nearly 10%.) Corn flakes your thing? Corn is up 5.5%.

At least in the US, the humble egg isn’t soaring in price. Wholesale prices for the New York market—one of the most often used prices for the egg market—are roughly flat over last year, according to the US Department of Agriculture (pdf).

Now, some market pundits would likely point out that that these commodity price increases have inflationary implications. After all, gold—the traditional inflation hedge—is also surging since the start of the year, rising more than 9%. And Treasury Inflation-Protected Securities, or TIPS, are outperforming traditional Treasurys.

Might the breakfast boom be the healthy start of a broader inflationary push?

That might be a welcome development as long as it doesn’t get out of hand, considering that US inflation has sat consistently below the Fed’s target of roughly 2%.

Another spin on this phenomenon: A strong American breakfast index bodes well for the American economy. After all, US corporate bosses have long noted a connection between breakfast and economic activity.

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