Strike Back at the Rising Cost of Groceries
July 2, 2011By: Ian WyattArticles RSS feedPrintPrint

According to the Bureau of Economic Analysis (BEA), consumer consumption accounts for 65 percent or more of the U.S. GDP. Yes, almost two-thirds of the entire U.S. economy relies on the consumption.

When Bob Q. Consumer halts spending because of unfortunate circumstances such as loss of employment, lower wages, decline of confidence, or simply lower purchasing power of income received, GDP is adversely affected.



As you can see from the chart above, consumer purchasing power is declining rapidly and has been for quite some time.

Bottom line: the same monthly income just doesn't go as far in today's economy as it did even one year ago, particularly when it comes to buying groceries.

Agricultural prices have skyrocketed in recent months, and we as consumers are feeling the pinch. To put it simply, when the dollar's purchasing power declines, commodities prices rise in the exchanges and eventually at the grocery store. And, if your grocery bill is high, your disposable income used towards items you can live without (the items that keep the U.S. economy going) declines, thereby negatively impacting the economy.

But, not all is lost. There are ways to fight the ongoing rise in commodity prices that are negatively impacting your bottom line.

The best way to fight a rise in commodity prices, more specifically a rise in your grocery bill - foreign currency exchange - otherwise known as forex.

The Canadian dollar, the Australian dollar, and the New Zealand dollar are all seen as commodity currencies. What do I mean by that?

All of these countries export a large amount of commodities which are imperative to the success of their respective economies. Basically when commodity prices rise, the three commodity currencies perform well.

And, it is the long-term rise in agricultural prices that negatively impacts purchasing power for consumers at the grocery store. Simply stated, higher ag prices - higher grocery bill.



Just take a look at the rise in the Nasdaq OMX Global Agriculture Index (QAGR). As you can plainly see, global agricultural prices have been on a tear since July 2010.

So, how can we combat the ongoing rise in agricultural prices and more importantly, our grocery bill?

Again, forex.

Blake Young of Investools recently mentioned an investment in forex that would act as a hedge to your rising grocery costs. Here is his example:

"Suppose you spent an average $500 a month in groceries and saw your grocery bill increase incrementally the same 50 percent over eight Months that the QAGR saw. You have paid approximately $1,000 more the usual. Meanwhile, purchasing one mini contract of the AUD/USD on July 1 when the QAGR was breaking through its highs would have generated over $1,500 in the same time frame.
That hedge would have taken care of the increase in grocery prices - with $500 to spare.

Because the forex spot market continually rolls over, this type of hedge can be left on for multiple months if it is monitored carefully and proper money management is in place."

I realize that some of you may feel as though forex is worlds away from small caps, but as astute investors we need to educate ourselves on all the opportunities and financial products that will certainly make investing easier and more productive.

Ian Wyatt
Chief Investment Strategist, Wyatt Investment Research
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