Analysts see no relief from food price increases

By Reuters
Posted March 15 at 5:18 p.m.

A rising tide of global forces is supporting the surge in prices for important food staples such as meat, dairy and grains, commodity experts said at the Reuters Global Food and Agriculture Summit on Tuesday.

“This is a pretty sustainable increase. … A number of factors have been building over time in terms of the commodity increase: world economic growth, rising crude oil prices, increased Chinese import demand all have conspired,” said Bill Lapp, president of Advanced Economic Solutions, a commodity analytical firm based in Omaha, Neb.

Since July, the rise in commodity costs associated with food production has added incremental expenses approaching $40 billion, he said.

“These costs do have to be passed on to consumers if there isn’t any relief in commodity prices. To date we have not seen that,” said Lapp, previously a vice president of economic research for ConAgra Foods.

U.S. corn, wheat and soybeans have escalated to near-record highs this year as strong demand and severe weather cut world grain stocks. Beef prices hit a 7-1/2 year high Tuesday amid a jump in feed costs, shrinking cattle numbers and big export sales.

Prices for meat, dairy and fresh fruits and vegetables, which fluctuate with market forces, are seeing “eye-popping” increases, said Janney Capital Markets analyst Jonathan Feeney.

Anywhere from 4 to 17 percent of a shopper’s income goes to food, he said.

Packaged-food makers, who can lock in purchases for some items over certain time periods, have been able to delay increases by “living on their hedges,” Feeney said.

Those prices will head higher as “all hedges eventually end,” Lapp added.

David Garfield, managing director of the consumer products practice at AlixPartners in Chicago, said: “We definitely think that cost pressures on the producers are durable. … The cost pressure is not going away, the question is ‘what can you try to do to combat that?’ “


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