Ingredient prices mixed as year draws to close

by Ron Sterk
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Ron Sterk

KANSAS CITY — As 2016 draws to a close, many, but certainly not all, food ingredient prices are down from a year ago, with several at or near multi-year lows. Many outside markets, meanwhile, are sharply higher.

Commodity and ingredient prices generally have been pressured by ample if not record domestic and global supplies in the past year, but numerous outside markets have been most influenced since Nov. 8 by the election of businessman but political outsider, Donald J. Trump, as the 45th president of the United States.

The U.S. dollar has been at or near a 14-year high, with renewed strength after the fall election. A strong dollar makes U.S. products more costly for foreign buyers. The U.S. dollar index was up about 5% from a year ago.

Equity markets have especially responded to the election of Mr. Trump, who is seen as business friendly. The Dow Jones average of industrial shares has soared since Election Day and has been bumping up against the 20,000 benchmark, although there also has been considerable worry about a sizeable correction at some point.

Crude oil has posted strong gains in part on news that the Organization of Petroleum Exporting Countries agreed on production reductions in an effort to boost sagging crude oil prices. It remains to be seen if OPEC will actually make a significant production cut.

Record 2016 U.S. and global production of corn and soybeans has been well known for some time, as has been record outturn of global wheat and ample domestic supplies. Wheat futures fell to 10-year lows during the summer and fall, with Minneapolis spring wheat futures holding up better than either Chicago or Kansas City winter wheat contracts. Last week the nearby Minneapolis March contract was up about 10% from the end of 2015, Chicago March was down 14% and Kansas City March was down 12%.

Corn futures also saw multi-year lows in the fall.
 

 

Corn futures also saw multi-year lows in the fall with nearby March last week down only about 3% from a year earlier.

Soybean prices, meanwhile, have withstood record domestic and global supplies and were trading about 17% above year-ago levels, due primarily to strong demand from China.

Market analysts mostly agree that 2017 will bring lower domestic corn and winter wheat plantings and higher soybean acreage, with current returns favoring soybeans. But continued ample domestic and global supplies may limit corn and wheat price increases, while rebounding soybean output in South America may pressure soybean prices.

Soybean oil prices have surged about 20% from a year ago despite larger supplies with support primarily from strong demand from the biodiesel sector and 4½-year highs in palm oil, of which production in Southeast Asia was curbed by the recent El Niño weather pattern.

Of all food ingredient price swings, none were more dramatic than eggs and egg products, both of which saw multi-year lows in 2016 after experiencing record highs in 2015 due to losses resulting from avian influenza. Although breaking egg prices recovered some on holiday demand in December, values still were down over 30% from a year ago. The sharpest contrast came during the summer when egg prices were down more than 90% from a year earlier as supplies easily outdistanced demand. Dried egg white prices in late December were down 65% from a year ago.

Like many other commodities, milk supplies have been ample and growing, resulting in pressure on dry products prices in the first six months of 2016. But price trends of most dry products took a noticeable turn upwards in the second half of the year as international markets firmed and domestic and export demand improved. Dry whey prices were up 85% from both spring lows and year-ago levels.

The global cocoa market was transitioning to a year of surplus cocoa beans in 2016-17 (beginning Oct. 1, 2016), at the same time as concerns persisted about weaker-than-expected chocolate demand, especially in China. The price of basic 10% to 12% natural cocoa powder was down about 20% from a year ago, while cocoa butter (a primary ingredient in chocolate) prices were down 25%.

Refined sugar prices provided one of the more interesting studies of the year as increased demand for non-G.M.O. cane sugar boosted prices about 6% while reduced demand for bioengineered beet sugar, along with ample supplies, pressured values by about 9% on the year. The price spread between beet and cane sugar, usually only 1c or 2c a lb, widened to as much as 6c, although most expect the spread to narrow as low beet sugar prices attract more buyers in 2017.

The country as a whole, markets included, is entering uncharted territory in 2017 with the inauguration of Mr. Trump. At the same time, the U.S. Federal Reserve appears on a course to raise short-term interest rates, which may portend inflation is looming in markets for the first time in several years. It will be interesting to watch how much sway outside factors will have on commodity markets in 2017.

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