adios
04-06-2004, 05:13 PM
The talking heads and pundits keep saying the prices of commodities are a negligible cost to produce finished goods. Well we're seeing higher prices in food commodities. I suppose now that we're seeing a shortage and the price increase we could be at a top in this commodity.
Soaring Soybean Prices Hit Home
Food Producers, Consumers
Feel Pinch of Short Supply;
Export Curbs Aren't Likely
By SCOTT KILMAN
Staff Reporter of THE WALL STREET JOURNAL
April 6, 2004; Page A3
A domestic shortage has pushed soybean prices above $10 a bushel, twice the level of just seven months ago, and the effects already are being felt among food producers and at grocery-store cash registers.
The buff-colored legume -- an essential ingredient in thousands of products as varied as cooking oil and pet food -- has fallen in short supply in the U.S. after dry weather unexpectedly shaved off 15% of the U.S. soybean harvest in 2003, making it the smallest haul in seven years. Then, China launched a buying spree of U.S. soybeans, which it primarily uses for feeding livestock to meet its population's growing demand for meat. China has acquired a record 300 million U.S. bushels since September, a whopping 13% of all the U.S. soybeans produced last year.
The soybean inventory on March 1 was 25% smaller than a year earlier, according to the U.S. Department of Agriculture. The last time U.S. soybean supplies were this tight and prices so high was 1973, when President Nixon responded by slapping an embargo on exports in order to shield U.S. consumers from high food costs.
"Soybean oil has been a real killer," said Carlos Gutierrez, chairman and chief executive of Kellogg Co., Battle Creek, Mich., which uses the ingredient in such products as Pop-Tarts and Eggo waffles.
Already, the increase is being felt in supermarket aisles. The retail price of a 32-ounce bottle of Crisco cooking oil is up 21% since November. Del Monte Foods Co., San Francisco, raised prices of its pet-food brands -- 9Lives and Kibbles 'n Bits -- by about 5% in January, following its rivals. The makers of some soy-based foods, such as soy milk and vegetable burgers, expect to raise their prices 5% to 10% this year.
Soybeans aren't the only farm commodity going through the roof. World grain supplies are the tightest in decades, the result of consumption having outpaced production over the past five years. Compared with prices a year earlier, rice is up 79%, corn is up 30% and wheat is up 18%.
Several other farm commodities are in the boom part of their boom-and-bust price cycles. After two years of depressed prices, the cost of raw milk is up 33% compared with a year earlier, signaling higher retail prices this summer of such dairy products as cheese and ice cream. The chicken industry, recovering from a shakeout, is charging a record price for broilers, up 42% from a year earlier.
But it is the soybean situation that is causing the most consternation for the food industry. It is the commodity the country might actually run out of by late summer -- a development that would possibly idle some plants and force reformulations of some products.
The sharply rising prices are all the more striking because commodity costs generally have trended lower for decades, boosting consumers' buying power at the supermarket.
Unlike the Nixon White House, the Bush administration has no plans to restrict exports. Washington wants Beijing to buy more U.S. goods in order to ease America's huge trade deficit with China. High commodity prices save the U.S. Treasury billions of dollars. When crop prices are this high, farmers aren't eligible to receive price-support checks from the federal government.
"I've never made so much money on my soybeans. It's like selling two crops in one year," said John Robinson, a Monticello, Ill., farmer, who sold 2,500 bushels of soybeans for $10 a bushel in March.
With prices so high, Mr. Robinson, 50 years old, is making plans to replace his 15-year-old harvesting combine with a newer model -- a purchase that might cost him roughly $70,000 -- and to replace his family's home computer.
But soybean buyers aren't so thrilled. Petaluma Poultry of Petaluma, Calif., is for the first time importing the soybean meal it needs for feeding its chickens, which are sold on the West Coast. Likewise, White Wave, a Boulder, Colo., soy-milk maker, is bringing in organic soybeans from Brazil.
"We're just trying to make it until the next harvest," said Steve Demos, president of White Wave, a Dean Foods Co. unit that makes Silk soy milk.
The Bush administration is counting on U.S. farmers to respond to high prices by producing more soybeans. But it is far too early to know whether the new crop will be big enough or arrive in time. Unless soybean prices go higher to damp demand, the U.S. might run out by mid-September -- just before the next harvest can replenish bins. "This a very unusual situation," said Robert Wisner, an Iowa State University economist. "Things will get very interesting this summer."
Now, with domestic supplies so tight, some companies are having to idle plants that crush soybeans into meal and oil. Cargill Inc., a closely held commodity-processing concern, idled its Guntersville, Ala., crushing plant in January. Rival Bunge Ltd. temporarily closed its Destrehan, La., facility in early March.
"It is possible we might have to reduce further our capacity," said Bill Wells, chief financial officer of Bunge, which operates 11 other U.S. crushing plants.
While their companies were busily exporting U.S. soybeans, some commodity executives figured they could deal with any shortages by importing soybean byproducts, such as meal, from Brazil, where they long have had extensive operations. However, the harvest under way in Brazil is much smaller than anticipated.
The magnitude of the cost to consumers from the soybean shortage in higher food prices isn't clear yet. Some food companies use sophisticated hedging strategies involving futures contracts to protect themselves from price gyrations.
But prices of so many commodities are rising at the same time that it is inevitable that many food makers will raise their list prices. G. Leonard Teitelbaum, an analyst at Merrill Lynch in New York, says he will cut his earnings estimates for major packaged-food brands if they aren't able to raise prices 2% across the board within a few months.
Kellogg and General Mills Inc. officials declined to talk about pricing plans. ConAgra Foods Inc. officials didn't return phone calls seeking comment.
Any price increase by the big packaged-food brands would fuel food inflation, which is already showing signs of accelerating. According to a 32-state survey by the American Farm Bureau Federation, the retail price of a market basket of 16 basic grocery items leapt 10.5% in the first quarter from the year-earlier period. It was the biggest first-quarter increase in the products -- which include chicken, eggs, mayonnaise, apples and cooking oil -- since the survey began in 1989.
"It certainly implies that there is a lot of inflationary pressure out there now," said Terry Francl, senior economist of the farmer trade group based in Washington.
Soaring Soybean Prices Hit Home
Food Producers, Consumers
Feel Pinch of Short Supply;
Export Curbs Aren't Likely
By SCOTT KILMAN
Staff Reporter of THE WALL STREET JOURNAL
April 6, 2004; Page A3
A domestic shortage has pushed soybean prices above $10 a bushel, twice the level of just seven months ago, and the effects already are being felt among food producers and at grocery-store cash registers.
The buff-colored legume -- an essential ingredient in thousands of products as varied as cooking oil and pet food -- has fallen in short supply in the U.S. after dry weather unexpectedly shaved off 15% of the U.S. soybean harvest in 2003, making it the smallest haul in seven years. Then, China launched a buying spree of U.S. soybeans, which it primarily uses for feeding livestock to meet its population's growing demand for meat. China has acquired a record 300 million U.S. bushels since September, a whopping 13% of all the U.S. soybeans produced last year.
The soybean inventory on March 1 was 25% smaller than a year earlier, according to the U.S. Department of Agriculture. The last time U.S. soybean supplies were this tight and prices so high was 1973, when President Nixon responded by slapping an embargo on exports in order to shield U.S. consumers from high food costs.
"Soybean oil has been a real killer," said Carlos Gutierrez, chairman and chief executive of Kellogg Co., Battle Creek, Mich., which uses the ingredient in such products as Pop-Tarts and Eggo waffles.
Already, the increase is being felt in supermarket aisles. The retail price of a 32-ounce bottle of Crisco cooking oil is up 21% since November. Del Monte Foods Co., San Francisco, raised prices of its pet-food brands -- 9Lives and Kibbles 'n Bits -- by about 5% in January, following its rivals. The makers of some soy-based foods, such as soy milk and vegetable burgers, expect to raise their prices 5% to 10% this year.
Soybeans aren't the only farm commodity going through the roof. World grain supplies are the tightest in decades, the result of consumption having outpaced production over the past five years. Compared with prices a year earlier, rice is up 79%, corn is up 30% and wheat is up 18%.
Several other farm commodities are in the boom part of their boom-and-bust price cycles. After two years of depressed prices, the cost of raw milk is up 33% compared with a year earlier, signaling higher retail prices this summer of such dairy products as cheese and ice cream. The chicken industry, recovering from a shakeout, is charging a record price for broilers, up 42% from a year earlier.
But it is the soybean situation that is causing the most consternation for the food industry. It is the commodity the country might actually run out of by late summer -- a development that would possibly idle some plants and force reformulations of some products.
The sharply rising prices are all the more striking because commodity costs generally have trended lower for decades, boosting consumers' buying power at the supermarket.
Unlike the Nixon White House, the Bush administration has no plans to restrict exports. Washington wants Beijing to buy more U.S. goods in order to ease America's huge trade deficit with China. High commodity prices save the U.S. Treasury billions of dollars. When crop prices are this high, farmers aren't eligible to receive price-support checks from the federal government.
"I've never made so much money on my soybeans. It's like selling two crops in one year," said John Robinson, a Monticello, Ill., farmer, who sold 2,500 bushels of soybeans for $10 a bushel in March.
With prices so high, Mr. Robinson, 50 years old, is making plans to replace his 15-year-old harvesting combine with a newer model -- a purchase that might cost him roughly $70,000 -- and to replace his family's home computer.
But soybean buyers aren't so thrilled. Petaluma Poultry of Petaluma, Calif., is for the first time importing the soybean meal it needs for feeding its chickens, which are sold on the West Coast. Likewise, White Wave, a Boulder, Colo., soy-milk maker, is bringing in organic soybeans from Brazil.
"We're just trying to make it until the next harvest," said Steve Demos, president of White Wave, a Dean Foods Co. unit that makes Silk soy milk.
The Bush administration is counting on U.S. farmers to respond to high prices by producing more soybeans. But it is far too early to know whether the new crop will be big enough or arrive in time. Unless soybean prices go higher to damp demand, the U.S. might run out by mid-September -- just before the next harvest can replenish bins. "This a very unusual situation," said Robert Wisner, an Iowa State University economist. "Things will get very interesting this summer."
Now, with domestic supplies so tight, some companies are having to idle plants that crush soybeans into meal and oil. Cargill Inc., a closely held commodity-processing concern, idled its Guntersville, Ala., crushing plant in January. Rival Bunge Ltd. temporarily closed its Destrehan, La., facility in early March.
"It is possible we might have to reduce further our capacity," said Bill Wells, chief financial officer of Bunge, which operates 11 other U.S. crushing plants.
While their companies were busily exporting U.S. soybeans, some commodity executives figured they could deal with any shortages by importing soybean byproducts, such as meal, from Brazil, where they long have had extensive operations. However, the harvest under way in Brazil is much smaller than anticipated.
The magnitude of the cost to consumers from the soybean shortage in higher food prices isn't clear yet. Some food companies use sophisticated hedging strategies involving futures contracts to protect themselves from price gyrations.
But prices of so many commodities are rising at the same time that it is inevitable that many food makers will raise their list prices. G. Leonard Teitelbaum, an analyst at Merrill Lynch in New York, says he will cut his earnings estimates for major packaged-food brands if they aren't able to raise prices 2% across the board within a few months.
Kellogg and General Mills Inc. officials declined to talk about pricing plans. ConAgra Foods Inc. officials didn't return phone calls seeking comment.
Any price increase by the big packaged-food brands would fuel food inflation, which is already showing signs of accelerating. According to a 32-state survey by the American Farm Bureau Federation, the retail price of a market basket of 16 basic grocery items leapt 10.5% in the first quarter from the year-earlier period. It was the biggest first-quarter increase in the products -- which include chicken, eggs, mayonnaise, apples and cooking oil -- since the survey began in 1989.
"It certainly implies that there is a lot of inflationary pressure out there now," said Terry Francl, senior economist of the farmer trade group based in Washington.