Category: Hyper-inflation


Source: SFGate

For the first time since 2008, inflation is hitting consumers in the stomach.

Grocery prices grew by more than 1 1/2 times the overall rate of inflation this year, outpaced only by costs of transportation and medical care, according to numbers released Wednesday by the U.S. Bureau of Labor Statistics.

Economists predict that this is only the beginning. Fueled by the higher costs of wheat, sugar, corn, soybeans and energy, shoppers could see as much as a 4 percent increase at the supermarket checkout next year.

“I noticed just this month that my grocery bill for the same old stuff – cereal, eggs, milk, orange juice, peanut butter, bread – spiked $25,” said Sue Perry, deputy editor of ShopSmart magazine, a nonprofit publication from Consumer Reports. “It was a bit of sticker shock.”

But it makes sense. Since November 2009, meat, poultry, fish and eggs have surged 5.8 percent in price. Dairy and related products have gone up 3.8 percent; fats and oils, 3 percent; and sugar and sweets, 1.2 percent.

While overall inflation nationwide was 1.1 percent, grocery prices went up 1.7 percent nationally and 1.3 percent in the Bay Area, said Todd Johnson, an economist for the Bureau of Labor Statistics office in San Francisco. “The largest effects on grocery prices here over the last month were tomatoes, followed by eggs, fish and seafood.”

Produce steady

Across the country, the price of produce has remained fairly steady. But the U.S. Department of Agriculture predicts that next year the price of fruits and vegetables, like many other food commodities, could go up. The government agency is forecasting a 2 to 3 percent food inflation rate in 2011 – a pace that is not unusual in a rebounding economy.

“We usually err on the conservative side,” said Ephraim Leibtag, a senior economist with the USDA, adding that “2011 holds a bit of uncertainty, so I wouldn’t be surprised if it goes higher. If it goes to 6 percent, then we should be worried.”

Michael Swanson, an agricultural economist at Wells Fargo, said that as long as corn, soybean and energy prices continue to climb, food inflation could reach 4 percent in 2011.

“The USDA always plays it safe,” he said, adding that the nation is likely to see the biggest increases since 2008, when the food inflation rate was a record 5.5 percent.

The global demand for corn – used for food and ethanol – has swelled so much that feed costs for farmers and ranchers are being passed on to the consumer, Swanson said.

Gas, diesel play a role

Gas and diesel prices also are playing a role. Wheat costs went through the roof this year when 20 percent of Russia’s crop was destroyed by drought and wildfires, causing the country, the third-largest producer in the world, to ban exports of the grain. The price of sugar, also used for ethanol in parts of the world, is priced at a two-decade high.

Kraft Foods Inc., one of the world’s largest food producers, has already announced plans to increase its prices because of mounting ingredient costs and flagging sales. General Mills, maker of everything from flour and baking mixes to cereal and Yoplait yogurt, has said it, too, will raise some of its product prices in January. Experts said consumers can expect the same from Kellogg’s and Nestle.

The silver lining, Swanson said, is that retailers such as major supermarket chains and big-box stores are likely to push back at wholesalers to keep prices from jumping too much.

“Food is a high-frequency driver,” he said. “So if stores like Walmart and Kmart want to get shoppers in the door, it’s to their benefit to keep prices low.”

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Source: Bloomberg

World food prices climbed for a fifth month, rising to the highest level in more than two years in November on higher costs for cereals, sugar and cooking oil, the United Nations’ Food and Agriculture Organization said.

The FAO’s index of 55 food commodities jumped to 205.4 points, the highest level since July 2008, the Rome-based agency said in a monthly report on its website today. The indicator rose from 198.1 points in October.

Food prices may rise further unless global grain production rises “significantly” next year, the FAO said in a Nov. 17 report. The cost of food rose to a record in June 2008, prompting deadly riots in countries from Haiti to Egypt.

The advance is the longest since January, when the price index rose for six months before declining in February. Prices climbed for an uninterrupted 18 months through March 2008, falling the next month before rising to a record.

The cereal-price index jumped to 224.9 points from 219.9, while the indicator for cooking-oil prices rose to 243.3 points in November from 220 points in the previous month. The gauge for sugar prices advanced to 374.7 points from 349.3.

The index for dairy prices rose to 207.8 from 202.6 points and the meat-price index was unchanged at 138.5 points, the FAO data showed.

The basis for the FAO index is 2002-04. The gauge includes commodity quotations that the agency considers representative for international food prices.

Source: Traderrog

Grain Could Rise +50% In 2011 On Drought, Shortages, Demand, And Weather.

“Soybeans, Palm Oil to Extend Rally on Chinese Purchases, Investment Demand.”

“Global prices of soybeans and palm oil are likely to extend their rally on demand from China, the biggest user, and as investors buy commodities to protect their wealth, said analysts and executives at a Guangzhou conference.” (Editor: We think the whole price sector of all grains and related oils will see price explosions. China will not be denied on either cash or credit).

“The price of July-delivery soybeans may climb to $16 a bushel from $13 should drought occur in the U.S. next summer, said Anne Frick, analyst at Prudential Bache Commodities LLC in New York. Palm oil may extend its rally into 2011, said Godrej International Ltd. Director Dorab Mistry in prepared remarks. He also predicted at the weekend that the price may gain to 3,300 Ringgit ($1,067) per ton, a level reached today.”

“Higher prices may spur costlier food, fanning inflation. World food costs climbed to the highest level in more than two years in October on more expensive meat, cereals, cooking oils and sugar, the United Nations’ Food and Agriculture Organization said. Farm commodity prices, measured by the Standard & Poor’s GSCI Agriculture Index of eight futures, climbed +37% this year as China and India grew three times faster than the U.S.”

“The growth in consumption is in China,” and, by some forecasts, is so rapid that it may test the world’s limited resources, Frick told industry officials. Should the appetite for commodities from cash-rich investors become “wild and crazy” as some executives predicted, the market “could get out of control,” she said.”

‘Soybeans for January delivery were little changed today at $12.8575 a bushel, below the $12.90 a bushel reached on November 5, the highest level for the most active contract in more than two years. Palm oil for January delivery jumped +4.4% to 3,330 Ringgit in Malaysia. The pace of China’s soybean purchases for delivery this marketing year has exceeded expectations, according to Cofco Ltd.”

“More and more companies are buying further into future months” and purchases are larger, said Chang Muping, vice general manager of the oilseed division at Beijing-based Cofco. While Chinese crushers used to buy a few months before shipping, they now buy half a year or more ahead, he said.”

“Soybean costs climbed even as global output increased to a record, signaling prices are more influenced by economic changes such as increased money supply, said Frank Zhou, general manager of protein and vegetable oil trading at Cargill Investments (China) Ltd.”

“The rates of price increases “have surprised me even as I’m bullish,” Zhou said. China’s domestic edible oil market has seen excessive price gains even with large inventories, which are an “overbought” indication, Zhou said.”

“The market will find ways to regain the balance, said Frick. China’s pace of U.S. soybean buying slowed last week, improved weather in South America will speed planting, and a predicted increase in palm oil output may alleviate tightness, she said.”

“The flipside of the question is whether China’s demand in fact supports global prices at these levels,” said Larry Li, trading director at Noble Grain China. “Purely based on fundamentals, these high levels are certainly not supported.” “What worries me is everyone in the room is bullish,” Frick said. “Who’s going to sell?”  -William Bi, &  Claire Leow Bloomberg.net

We are not ready to forecast 2011 grain and oil prices just yet. However, on a modest forecast we could see preliminarily, corn at $7-$8, soybeans at $16 and wheat at $12.00. Palm oil and soybean oil could be 150% higher in 2011 than the highest highs recorded for 2010.

Source: Chicago Tribune

With the cost of commodities such as wheat and eggs on the rise, food manufacturers are making it clear they won’t be eating the increases alone. Prices will rise for consumers, too.

The Consumer Price Index for food rose 0.2 percent in August after falling in July. Prices on fruits, vegetables, cereal and baked goods led the charge, up 0.4 percent, after months of declines.

Two years ago, in the wake of wild commodity cost increases, manufacturers were able to push through their first meaningful consumer price increases in many years.

Prices for ingredients are climbing again, a function of extreme weather conditions in some parts of the world as well as increased demand, and there are now signs food companies are ready to pass on those cost increases.

C.J. Fraleigh, North American CEO of Downers Grove-based Sara Lee Corp., said that while the increases at grocery stores today seem much smaller than what was instituted in 2008, “it’s a very fluid situation.”

This week at investor meetings in New York, Sara Lee and Northfield-based Kraft Foods both acknowledged that rising input costs will be passed on to the consumer, at least to a certain extent. Just how and where will be a mixture of art and science.

Sara Lee, which raised prices slower than its competitors in 2007 and 2008, now has a higher-tech system to help the company anticipate when to raise prices and by how much.

“We were victims of movement of commodities,” Monty Pooley, president of North American retail, said of the 2007 and 2008 commodity cost swings. With new tools in place, he said, the company has been on the forefront of price adjustments, which is going to be crucial to Sara Lee moving forward. “We’re working with customers to reflect the right price relative to competition,” he said.

Just how Sara Lee goes about raising prices will depend on what the product is, and even in which area of the country it’s being sold. Fraleigh noted that the bread market “is extremely competitive,” so the company will be surgical about price increases. In areas where Sara Lee is the No. 1 brand, sells a number of products and has plenty of shelf space, it’s likely to raise prices. If it’s priced lower than competition in those areas, then Sara Lee prices could go up double digits, he said.

In markets where Sara Lee breads aren’t leading, and prices are tight, they’re likely to remain the same, or even go down.

Northfield-based Kraft has worked over the last four years to build its presence in snack products, and away from commoditized businesses. As a percentage of sales, Kraft’s snack portfolio has moved from 29 percent in 2006 to 51 percent in 2010, including its Cadbury businesses.

Kraft CEO Irene Rosenfeld said she doesn’t see a tremendous amount of price elasticity, particularly in North America, where the company’s business has lagged expectations.

“The key is not so much what’s happening in inputs, (but) to what extent are we offering enough value in our brands so we can price away our input costs,” she said in an interview. To do that, she said, the company is investing in innovation, marketing, product quality, advertising and consumer promotions.

But prices will be going up. Kraft is projecting 5 percent sales growth over the next three years. Rosenfeld said that two-thirds of the increase will come from higher volume of goods being sold, and the remaining third will be from price increases.

Some experts had predicted that the average consumer would be shielded from this summer’s wave of commodity cost increases, which have seen prices for wheat, eggs and sugar soar 60 percent or more.

But Ephraim Leibtag, an economist with the U.S. Department of Agriculture’s Economic Research Service, noted that food costs as a percentage of annual expense has declined in the last few decades. On average, people are paying less for their food. Prices have been very stable since 2008, “so prices had nowhere to go but up,” he said

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