Commentary: Year winds down with most ingredient prices far above year-ago levels

by Ron Sterk
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A couple of weeks ago in this column, comparisons were made between initial forecast prices for some commodities and ingredients with revised forecasts in December. Some of the differences were striking. But even more striking is the actual price of many ingredients as 2007 comes to an end with prices at the end of 2006. While market analysts expect some relief in 2008 as larger wheat and soybean crops are harvested, food processors and ultimately consumers must deal with the current tight supply and high price situation of many items for a few more months.

Following are some key ingredient prices and percentage changes at the end of 2007 compared with a year earlier.

2007

2006

% change

Grains and oilseeds

$/bu

$/bu

Durum

19.75

6.30

213%

Hard red spring

11.47

5.51

108%

Soft red winter

9.50

5.14

85%

Hard red winter

10.20

5.64

81%

Soybeans

11.48

6.55

75%

Corn

4.08

3.55

15%

Oats

3.05

2.89

6%

Grain products

$/cwt

$/cwt

Semolina

48.85

15.55

214%

Pan bread flour

23.75

13.05

82%

Cracker flour

21.85

12.35

77%

Soy flour

21.96

14.08

56%

Corn meal

15.93

14.49

10%

Oats flakes

27.00

25.00

8%

Other ingredients

c/lb

c/lb

Nonfat dry milk

170

129

32%

Dry whey

32

44

-27%

Caseinate

685

375

83%

Nest run eggs

110

37

197%

Dried whole egg

430

183

135%

Dried whites

523

360

45%

Dried yolks

333

133

150%

Cocoa powder

60

53

13%

Sugar

25

26

-4%

Soybean oil

45

28

61%

Other inputs

Diesel fuel, $/gal

3.31

2.61

27%

Natural gas, $/million BTU's

7.18

6.43

12%

Crude oil, $/bbl

89.93

63.40

42%

Sosland indexes*

Mayonnaise

196.3

106.8

84%

Apple pie

227.3

106.4

114%

Pasta

514.2

163.7

214%

White pan bread

255.0

144.9

76%

* Indexes are based on ingredient costs using standard formulas.

 

Of the ingredients listed, only two, sugar and dry whey, are down from a year ago. Sugar supplies are ample and have been stable most of the year. Dry whey prices had been sharply higher but have been easing since mid-summer as supplies grew and resistance to higher prices pressured values.

But for grain and oilseed products, major relief is weeks, or even months away, according to market analysts. Winter wheat prices are expected to begin to ease around March as new crop prospects are better set. Spring wheat and durum harvests are later in the summer, however, and buyers will have to survive extremely tight supplies a while longer. Corn and soybean prospects will become better known after the late June acreage report, but actual U.S. new crop supplies will not be available until fall. South American soybean supplies will become available in the second quarter, which could help satisfy global demand, however.

Milk and dairy product supplies are expected to increase into 2008, and prices drop, but continued good export demand could limit declines. Egg supplies also should rebound later in the first quarter and prices come well off recent record highs.

Most analysts expect the majority of price changes at the end of 2008 to be in the minus column when compared to 2007, which will be good news for food processors. But few expect prices will drop all the way to "traditional" levels of just a couple years ago and a few more months of patience will be necessary in most cases.

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