World Wide Food Prices Moved Too Far, Too Fast?

U.S. stocks [.SPX  1304.03    -3.56  (-0.27%)   ] seesawed between modest gains and losses with investors reluctant to make big bets despite new data showing U.S. private employers added more jobs than expected in January.

Again, investors were concerned about the future moves in commodities, especially grains with the situation in Egypt underscoring just how incendiary the rapid rise in food prices has become.

In fact, A U.N. report shows its food price index is at the highest level ever recorded.
"There are simply too many countries facing food shortages," says Jim Bower in a note earlier this week. "It has become a problem that governments must solve in order to stay in power."

That thesis, combined with wicked winter weather in the US and a strike in Argentina, has sent some grains, such as corn [CC1 667.0    -2.25  (-0.34%)] andsoybeans [SBC1  Unavailable     ()], to 30-month highs. 

But with food prices advancing so rapidly investors are questioning whether the gains are sustainable? Have food prices gone too far too fast?

Instant Insights with the Fast Money traders

Brian Kelly thinks grains have more room to run despite the sharp moves higher. "We're talking about tremendous demand problems. If you're a leader, whether a dictator or a democratic leader, you need to feed your people. And you'll do it with wheat [WC1  857.5    -5.50  (-0.64%)], corn, soybeans and rice as well," he says. And On Fast at Five Brian Kelly suggests playing grains with long positions in two ETFs; 

Corn Front Month Fu... (Cc1) 667.0     -2.25  (-0.34%%) Chicago

Todd Gordon agrees with Brian Kelly but takes a technical perspective. "The commodities charts look very strong," he says. "673 is a big level in the corn market and I'd play it long."

When host Melissa Lee asks for an equities trade Joe Terranova says "love Bunge [BG  69.52   0.83  (+1.21%)   ] – you get a little everything; fertilizer, wheat and corn processing and they've got a mine where they're producing sugar." 

However, Terranova cautions that the rise in soft commodities may be tethered to something else – the weak dollar [DXC1  77.16    -0.12  (-0.16%)   ]. And he expects a summit on Friday could send the greenback higher. "Germany is looking like it won't allow the EU's financial stability fund to buy debt of nations like Greece. That could be problematic (for the euro)," he says.

John Stephenson, author of The Little Book of Commodity Investing, doesn't expect food prices to ease, either. "I expect grains to trade higher, he says , "especially corn and soybeans." 

Ever the contrarian Steve Cortes tells the desk he thinks food prices have overshot on the upside. "It's counter-trend but I think they're going lower," he says.