Food prices slowly following ingredient values higher

by Ron Sterk
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KANSAS CITY — The cost of a “classic” Thanksgiving dinner for 10 rose 1.3% from 2009, but it was 2.6% below the 2008 record high, reminiscent of ingredient prices overall, many of which have risen sharply in recent months but remain well below 2008 levels when most commodities set record highs.

The dinner survey, conducted annually since 1986 by the American Farm Bureau Federation, closely tracked the group’s 2010 quarterly market basket food surveys and the Commodity Price Index, the A.F.B.F. said. It indicated higher prices this year for milk, cream, rolls, carrots, celery, pumpkin pie mix, pie shells and sweet potatoes. In addition, the survey’s “miscellaneous” category, which lumps together several items needed to complete the dinner such as eggs, sugar, flour, butter and coffee was up 29% from a year ago, the largest increase of all the items included in this year’s survey.

On a broader scale, a comparison of current commodity and ingredient prices with those of 2008 may indicate food prices are heading higher, although somewhat held in check by the slow economic recovery.

On a global basis, the United Nation’s Food and Agriculture Organization in its latest Food Outlook Report warned of “harder times ahead” unless production of major food crops increases in 2011.

“International prices could rise even more if production next year does not increase significantly — especially in maize, soybean and wheat,” the F.A.O. said. The organization noted, though, that rice reserves were expected to increase 6% next year, and the U.S. Department of Agriculture earlier in November forecast record high U.S. and global rice production in 2010-11.

Domestically, the Bureau of Labor Statistics said last week the October C.P.I. for food and beverages rose 0.1% from September and was up 1.4% for the past 12 months. The index for dairy and related products, up 1.1% from September, showed the sharpest increase in the food sector. But the index for cereals and bakery products fell 0.5% from September.

Significant volatility this year, mainly in futures prices but also in some cash-only ingredients, also is reminiscent of markets in 2008. A dramatic example is breaking stock eggs, which moved from the year’s low of 30c a dozen in mid-October to two-year highs of 75c a dozen in mid-November as producers reduced flocks, put laying hens into forced molt and in some cases held eggs off the market to get profit margins out of the red as feed costs increased. The price increase of 2.5 times from the low in just 30 days compared with a high of $1.20 a dozen in March 2008, which rose 2.6 times from the prior low but over a nine-month period.

Soybean oil, the most widely-used vegetable shortening, hit a 27-month high of 49c a lb in mid-November, but was well short of the record 65¼c a lb in June 2008. Still, the current cash price was well above values that ranged mostly from 27c to 35c a lb from October 2008 to mid-2010.

Solae, L.L.C., St. Louis, last week announced a 7% to 9% global price increase for its soy ingredients, citing, in part, increases in the global producer price index and rising demand for protein.

“Like all food companies, Solae has been affected by general inflationary pressure in the current economic environment,” the company said.

Nearby soybean futures prices topped $13 a bu two weeks ago, well below highs above $16 a bu in early July 2008. A major difference this year is prices are soaring largely on unprecedented export demand despite record large U.S. soybean production while in 2008 the run-up was mostly the result of production problems.

Although futures prices for the major commodities were well off highs set in early November for corn and soybeans and in early August for wheat, they remained about 10% to 20% above year earlier levels.

Two key ingredients that were “exempt” from 2008 records — sugar and cocoa —- currently are well above highs from that year due mainly to supply issues for cocoa and to a combination of tight supply and strong demand for sugar.

Domestic bulk refined sugar was quoted at 57c a lb in mid-November, down from a high of 64c a lb in September, when old crop supply was running short, but more than 40% above the 2008 high of 40c a lb. On a global basis, the F.A.O. noted sugar, which recently hit 30-year highs, “was an important reason for the rise in the price of the global food basket in recent months.”

Domestic cash cocoa prices, which are the highest in Sosland Publishing Co. records, have held above $2 a lb for the basic 10% to 12% butterfat natural powder since July 2009, with current prices at $2.10@2.25 a lb, which is more than three times the 2008 average near 70c a lb.

Sosland’s proprietary ingredient indexes (see Page 60) have illustrated the price swings as well, with “heavy” users of cocoa and sugar above 2008 levels but others still well below those of the record year. For example, the vanilla ice cream index averaged near 126 so far in 2010 compared with 111 in 2008 and the milk chocolate bar index has averaged 191 this year, up from 124 in 2008. In contrast, the pasta index stood at 165 this year, well below 422 in 2008, and the white pan bread index averaged 170, below 238 in 2008.

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