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by Larry Levin

The markets ended a wild week with huge gains Friday. The explosion higher began with the main data figures Friday showing the CPI at just .2% (yeah right!) and consumer sentiment tumbling to a 28-year low.

Many of the economists quoted last Friday, all of which have drank the government kool-aid, said things like, "See, this proves that high energy and food prices are not spilling into other areas of the economy." Really? Dow Chemical raised its prices by a whopping 20% to cover its exploding food and energy cost increases and airlines are charging $15 for every bag checked to cover fuel cost increases. That sure sounds like it is spilling into other areas of the economy to me. By the way, the headline inflation data was 6%, which is an annual rate of 7.2%!

What's more, price increases may have just begun. Devastating floods in Iowa and torrential rain in other Midwestern states have taken a heavy toll on crops, throwing the door wide open to higher costs on the farm and soon to be in a supermarket near you.

Hardest hit is corn and soybeans from some of the country's top-producing states, Iowa , Illinois , Nebraska , Wisconsin and Minnesota . Both grains are at the foundation of the food pyramid, used extensively as primary ingredients and as livestock feed.

This could deplete as much as 3.5% of U.S. corn projected to be planted this year, based on the latest crop estimates from the U.S. Agriculture Department. "We're looking at very serious reductions," analysts are saying.

"The current situation is very unusual and represents one of the worst cases of flooding in history across the mid corn-belt during the development of the crop," a Citigroup analyst said.

I personally witnessed this flooding disaster up close. I was in Wisconsin Saturday evening for a niece's birthday party, which happened to be located on a farm. As I looked out into the field I only saw a little standing water. However, when my brother-in-law told me to look beyond the tree line at the other farm, I said "what farm? That's a lake." A river bank had broken down and flooded a 5,000-acre farm under 8-feet of water. We took his golf cart for a ride out to the tree line so I could get a closer look, and it was amazing. What was once a massive corn field now looked like Lake Geneva .

As we drove back on the edge of the corn field that was directly behind the party, we tried to detour to another part of the un-flooded field so I could see the sand bagging that they had been doing the prior evening. As we got closer, however, we had to stop because the ground was just too wet. A few minutes after we got back to the party we saw the farmer (Tony) drive up on his golf cart. Over a quick beer he told us that he was going back for a little more sand bagging and then was quitting for the evening. Tony said he raises more corn on higher ground so even if his field flooded behind my brother-in-law's house; he may still be able to break-even for the year. Of course, he didn't want that to happen. But as he finished his beer and looked up at the sky he said, "By the looks of these clouds I don't think those bags will hold. I may lose the whole field."

Sadly, I was told this morning that Tony's field did flood. His fields, as well as the corporate farm's 5,000-acre field, are total losses.

This, along with other factors, such as exorbitant energy prices, will play of role in pushing food prices at grocery stores to even loftier levels. In 2007, retail food prices jumped 4%, the biggest annual spike in 18-years. Moreover, the USDA projects retail food prices to shoot up at least another 4% this year. Thank God this isn't inflationary though...pfheeew!

Real Time Trading Signals*for

Trade Date: 6/13/08

E-Mini S&P Trades*
(before fees and commissions):

1) VA buy @ 9:40am at 1355.00 = +2.00 (1 lot)

2) TP buy @ 9:50am at 1356.00 = -1.75 (1 lot)

3) OTF buy @ 10:50am at 1356.00 = +1.00 & b/e

4) VA sell @ 1:45pm at 1354.50 = +2.00 (1 lot)

5) OTF buy @ 2:30pm at 1353.50 = -1.75 (1 lot)

6) Algorithm trades (6)...combined total...+6.00

E-Mini Russell Trades*
(before fees and commissions):

1) Buy @ 8:43am at 725.1 = +.3 (1 lot)

2) Sell @ 10:05am at 729.3 = b/e (1 lot)...+$30


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