By Michael Pento

This morning's crop report released by the U.S. Department of Agriculture allayed fears that June's deluge would decimate corn yields this year. Projected yields jumped to 155 bushels per acre and anticipated 12.28 billion bushels produced in total. The increase in projected yields stemmed from near-perfect weather in the plains since the flooding occurred in the late spring and early summer.

This short term reprieve in commodity prices should ease margin pressure on food producers like Kraft (NYSE: KFT), Smithfield (NYSE: SFD) and Tyson Foods (NYSE: TSN). While it is true I believe the long term trend in higher input costs for these companies will re-emerge, it is important not to overlook the current cyclical benefit for food producers that are being derived from falling agricultural commodity prices. For example, corn prices are off some 35% since they reached their high of nearly $8 a bushel on June 27th and Soy bean prices are down 27% from their all time high of $16.38 a bushel reached on July 3rd.

The good news for companies like Tyson Foods is that while they have been busy aggressively raising prices-food inflation is projected to rise by over 5% in 2008 according to the USDA-input costs are falling at the same time. According to their CEO Richard Bond who was quoted earlier this year saying, "We have no other choice but to raise prices substantially." He also indicated that fiscal 2009 will see a strong rebound in sales and earnings as many contracts will be renegotiated this year and the company plans on passing along the higher costs onto its customers. Kraft Foods CEO Irene Rosenfeld indicated that the company was able to pass along higher commodity prices in April, which enabled them to post positive net income for the first time in four quarters. They were able to boost prices on 90% of all its products.

Longer term the stresses on arable land, the growing wealth of the global consumer, and the continued push for bio-fuels will put a floor on commodity prices and engender another secular bull market. For now however, the cyclical confluence of improved weather along with falling agricultural and energy prices equate to a huge tailwind for these companies. Couple those factors with the aggressive price increases being passed on to the retailers and you should get a favorable period for investing in this sector.