How much you spend on groceries and clothing this year may depend on how good the weather is around the world. Droughts, floods and excessive rain in several countries means farmers are straining to meet the growing worldwide demand for grain and other commodities that are key ingredients in food products.
How much you spend on groceries and clothing this year may depend on how good the weather is around the world.
Droughts, floods and excessive rain in several countries means farmers are straining to meet the growing worldwide demand for grain and other commodities that are key ingredients in food products.
Commodity prices are approaching or have surpassed the high of 2008. If there’s a repeat of disappointing crop yields this year, consumers are likely to experience supermarket sticker shock.
“What you’ve had is basically a series of less than optimal production. It’s not one country. It’s not one crop,” said Carl Zulauf, an agriculture economics professor at Ohio State University. “We will need reasonably good weather across the Northern Hemisphere this summer in order for prices to decline.”
Since February 2010, prices for corn and wheat have doubled because of crop issues, driving up the cost of livestock feed and, thus, the wholesale cost of meat.
The price for cotton has skyrocketed to a record $1.91 a pound, when it rarely exceeds $1. Blame growing demand for cotton in China, massive flooding affecting the cotton crop in Pakistan and export restrictions in India, according to the Financial Times.
Prices for raw sugar cane have risen 75 percent since May, in part because of less-than-expected sugar yields in Brazil as well as flooding and a cyclone this month in Australia, resulting in the worst sugar crop in nearly 20 years.
And coffee prices are at their highest in about 14 years because of a lackluster coffee bean harvest in Brazil, heavy rains harming Colombia’s coffee crop and, possibly, investors bidding up commodity prices. Colombian coffee beans are selling for about $3 a pound, compared with about $2 a year ago.
The J.M. Smucker Co. said this month that it would hike prices for most coffee products, including some under its Folgers and Dunkin’ Donuts brands, by an average of 10 percent.
“I look forward in the morning to have a cup of decent coffee,” said William Griffith of Canton, Ohio. “(Green Mountain coffee) went from $5.98 to $6.38 seemingly overnight. That’s been in the past two weeks.”
Zulauf said that several countries have recovered more quickly from the recession and their resumption of growth is pushing up incomes in those regions, spurring demand for higher-quality food.
So far, consumers have not seen the brunt of the commodity-price increases in grocery stores.
Overall, food and beverage prices in the Midwest grew 1.8 percent last month from January 2010, according to U.S. Bureau of Labor Statistics. The increase was modest, even though the average retail prices for some staples in the Midwest were noticeably higher in December than a year ago.
Ground beef prices were up 10 percent, white sugar prices were up 20 percent, eggs were 12 percent more, milk prices 15 percent more and whole-wheat bread cost 7 percent more.
Last summer, wheat producers in Russia, Ukraine and Kazakhstan suffered droughts that reduced wheat and barley crops. Too much rain resulted in a bad wheat crop in western Canada, and excessive dryness resulted in the U.S. crop yielding 7 percent less than expected, Zulauf said.
That’s on top of flooding in Australia hurting its wheat harvest, dry weather reducing the corn yield in Argentina and rains in Malaysia affecting palm oil production. Zulauf said there’s concern that dryness could affect the winter wheat crop in the southern Plains states.
In addition, Mexico recently lost much of its corn crop because of a deep freeze, which also damaged yields for tomatoes, cucumbers, bell peppers and other produce in Mexico, Florida and Texas. Wendy’s is serving sliced tomatoes only on request by customers.
Food companies and grocery stores have had several options in blunting the effect of higher supply costs on price-resistant consumers. Because raw materials are only part of the cost of final products, companies minimize price increases by cutting the cost of the other components — labor, transportation, marketing, packaging –– or by substituting for other ingredients. But the rising price of oil has added to transportation costs.
Companies also can accept lower profit margins or reduce package quantities. Jeff Fisher, president and CEO of Fisher Foods, said his suppliers also can temporarily lock in the prices of some ingredients through contracts.
Despite such tactics, Fisher said, he’s beginning to see some suppliers increase prices, especially for coffee, beef and pork.
“We haven’t seen increases as of yet in bread, in deli products and a lot of areas,” said Fisher, who thinks investors are speculatively bidding up prices of commodity contracts. “Given the competitiveness of the grocery industry, we’re going to make every attempt to minimize the price increases.”
Snack-food company Shearer’s Foods Inc., based in Ohio, said it has increased the prices of private-label products sold to retailers during the past six months but has not raised prices of Shearer’s Food brand products.
Instead, the company has slashed marketing expenses and increased plant efficiency with new equipment. But Shearer’s can’t absorb price increases indefinitely, said Jim Allan, vice president of strategic sourcing.
Nancy Horne, co-owner of Norcia’s Bakery in Canton, Ohio, said she has not raised the price of a loaf of bread since early last summer, even though the cost of a 50-pound bag of flour has risen from between $13 and $14 in August to between $18 and $20.
“I can’t absorb all of this, especially with the price of gas for the vans,” Horne said. “I have to think about raising prices.”
Natalie Lehner, a spokeswoman for the Ohio Corn & Wheat Growers Association, said that although farmers are selling corn and wheat at higher prices, their profits are limited because of higher costs of fuel and fertilizer.
Griffith, who lives on disability payments, doesn’t like that events overseas affect how much he pays for groceries.
“So it’s a world market then,” he said. “I don’t really care for it.”