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Halftime: Food Prices Moved Too Far, Too Fast?

U.S. stocks 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 and soybeans , 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, corn, soybeans and rice as well,” he says. And On Fast at Five Brian Kelly suggests playing grains with long positions in two ETFs; DBA and JJG .

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 – 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. 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 in a live interview, "especially corn and soybeans."

He thinks the trade is long “nitrogen based fertilizer makers such as Agrium, and CF Industries. And I'd avoid consumer goods companies and food processors.” (Ahead of the show he told our producers stocks he’d avoid include ConAgra and Pilgrim’s Pride.

Karen Finerman is also worried about consumer goods companies. "I'm not loving my Kraft position right now," she says.

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. And as a result he thinks there's great value in Tyson , Supervalu and "other consumer staples names that have been killed."


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LME COPPER TO ALUMINUM RATIO

Turning attention to other commodities, the desk is also watching the action in metals. After copper hit record highs on Wednesday Brian Kelly was watching the ratio between copper and aluminum prices which broke above that key 3 level.

What must you know?

When it gets above 3 it becomes more economical for companies to substitute aluminum for copper (when possible). I think investors can go longAlcoa or for a pairs trade look at long Alcoa against a short position in Freeport .



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Trader disclosure: On Feb 2, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova Owns (VRTS); Terranova Owns (C); Terranova Owns (UPL); Terranova Owns (GM); Terranova Owns (PEP); Terranova Owns (MS); Terranova Owns (POT); Terranova Owns (LTD); Terranova Owns (SU); Terranova Owns (CVI); Terranova Owns (CVE); Terranova Owns (CPX); Terranova Owns (CNQ)

BRIAN KELLY
Accounts Managed By Kanundrum Capital Own (EBAY)
Accounts Managed By Kanundrum Capital Own (MCP)
Accounts Managed By Kanundrum Capital Own (RDC)
Accounts Managed By Kanundrum Capital Own (ATW)
Accounts Managed By Kanundrum Capital Own (MON)
Accounts Managed By Kanundrum Capital Own (JJG)
Accounts Managed By Kanundrum Capital Own (DBA)
Accounts Managed By Kanundrum Capital Own (MS)
Accounts Managed By Kanundrum Capital Own (TER)
Accounts Managed By Kanundrum Capital Own (TLT)
Accounts Managed By Kanundrum Capital Own (IAU)
Accounts Managed By Kanundrum Capital Own (SLV)
Accounts Managed By Kanundrum Capital Own The Yen
Accounts Managed By Kanundrum Capital Are Short the Australian Dollar

JOE TERRANOVA
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (LPHI)
Virtus Investment Partners Owns More Than 1% Of (NCRI)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of (CLB)

TODD GORDON
Aspen Trading Group is long the Euro vs the Swiss Franc

JOHN STEPHENSON
Stephenson Owns (POT), (AGU), (MOS), (CF), Corn Futures
Stephenson Is Short (CAG), (PPC)
First Asset Investment Management Owns (POT), (AGU), (MOS), (CF), Corn Futures
First Asset Investment Management Is Short (CAG)

RICHARD GREENFIELD
Greenfield has no disclosures

KEVIN CRISSEY/SOT FROM 2/1/11
KEVIN CRISSEY
Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from (UAL)
UBS AG, it's affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from (UAL), (LCC) in next three months
(UAL) is an investment banking client of UBS Securities within the past 12 months
UBS AG, its affiliates or subsidiaries own 1% or more of a class of (UAL), (LCC) common equity
UBS Securities LLC is a market maker in (JBLU), (UAL), (LCC)
UBS Securities LLC is acting as an advisor to Continental Airlines on its announced agreement to merge with UAL Corp

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CNBC.com with wires.

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CF
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DBA
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FCX
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MDLZ
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PPC
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SVU
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TSN
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JJG
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