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Top Traders: Inflation Is Here

Grain prices surged following a weak crop forecast, causing the "Fast Money" traders on Wednesday to think about inflation.

“The crop report was crazy bullish for corn, wheat and soybeans,” said Brian Kelly, founder of Kanundrum Capital and a "Fast Money" trader.

Corn futures rallied to the exchange limit Wednesday after the U.S. Department of Agriculture said domestic corn stocks would fall 9.4 percent from the prior year, hitting the lowest level in 15 years. The USDA attributed the low reserves to record ethanol demand and smaller global harvests. Nearly 5 billion bushels of corn will be used to make ethanol this year, the USDA said.

Corn prices rose sharply on Wenesday, extending the week's gains. Corn futures have risen by 4.2 percent this week and are up more than 92 percent in the past year.

Wheat prices were also rising in the wake of the crop report. The USDA cut forecasts for global wheat inventories due to smaller-than-expected crops in the Ukraine. Ukraine’s crop yields added to supply fears for the grain. Wheat prices have risen more than 83 percent in the past year as drought has damaged crops in Russia and floods have destroyed Australian crops.

The grain price hikes put inflation center stage as Federal Reserve Chairman Ben Bernanke addressed the U.S. House Budget Committee. Indeed, within minutes of his address, Bernanke fielded a question from Rep. Paul Ryan, R-Wisc., on the issue. Bernanke responded that inflation “made here in the U.S. is very, very low.”

The comment reinforced the Fed’s stance that it is focused on core inflation, not headline inflation, which includes food and oil prices.

The "Fast Money" traders have long argued that the market did not share his view. Inflation is here and is being priced in to stocks and commodities, Kelly has said. Last month, he recommended buying gold on inflation concerns.

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