Quote of the Day: Hard to Ignore Soaring Food Prices
Last week, the WSJ observed that 3 major food companies were having "their lunches eaten by soaring commodity prices. Costs at Campbell Soup, J.M. Smucker and Hormel Foods rose faster than sales in the prior quarter ended in October, helping to push their share prices lower at a time when such defensive stocks ought to be in high demand."
While had Campbell reported a 6.7% year-over-year revenue growth, its costs of goods sold rose 8.7%. Same thing at Smuckers: a 17% sales growth, but a 19% jump in costs. Even though Spam-maker Hormel had an 11% drop in hog prices, high feed costs hurt its Jennie-O Turkey Store division.
After years of absorbing these cost increases, its reached the point where there is little choice but to pass price increases on to consumers. According to an AC Nielsen survey, eight U.S. branded-food companies had raised prices by more than 2% over the 12 weeks ended Jan. 26. Annualize that, and its a nearly 9% price increase:
"This is all hard to ignore...unless of course you're an economist. They often disregard food prices when measuring inflation."
And that's our quote of the day.
Thanks, Mark!
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Source:
It Is Hard to Ignore Soaring Food Prices
Mark Gongloff
WSJ, February 15, 2008; Page C1
http://online.wsj.com/article/SB120303447307470075.html
Tuesday, February 19, 2008 | 11:55 AM | Permalink
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Downsizing J6Pak.
Posted by: Eric Blood Axe | Feb 19, 2008 9:13:16 AM
Yep, I used this story for my blog yesterday as well. And as a professional economist all I can say is.
Ouch.
http://pbp.typepad.com/economy/2008/02/its-hard-to-ign.html
Posted by: Michael Donnelly | Feb 19, 2008 9:16:24 AM
Visiting Wally World for my monthly purchases of staples, it was interesting to notice;
Chickens on strike. Eggs $1.69/doz
Cows on strike. Milk $3.49/gal
Ma Campbell tomato soup. 54 cents
Bread? fogetaboudit.
Food price spike in 1970-74 was blamed on the El Nino effect limiting the anchovy catch. I wonder what the reason de jour will be this cycle.
Posted by: Ross | Feb 19, 2008 9:23:33 AM
Bananas, 38 cents. Pretty good price.
Distilled water (for my coffee maker) up 12.5% (!)
Frozen pizza up 19% (!?)
Store brand peanut butter up 27% (!!??)
Noted a number of things "on sale" where the sale price is the regular price from a few months ago.
Posted by: Fred | Feb 19, 2008 9:35:30 AM
It should be included in inflation (and is in the CPI-U), but the fed should not take food inflation into account when setting rates, as monetary policy isn't going to change food consumption.
The quick fix to this particular issue is to end all subsidies/mandates for ethanol.
Posted by: Andrew | Feb 19, 2008 12:02:25 PM
Walmart shareholder quote: thank god we sell food and thank god for dumber than shtick analysts.
Posted by: Stuart | Feb 19, 2008 12:15:05 PM
If they take the high fructose corn syrup out of everything I might buy it again. No promises. Oh, and Campbells has too much sodium in their soups. Smuckers has the HFCS problem, won't buy it. As for Hormel, don't get me started on their processed meat garbage food.
Posted by: donna | Feb 19, 2008 12:16:52 PM
Since this fall, a bag of hot dog rolls has gone from 89 cents to $1.29 cents.
Posted by: Douglas Watts | Feb 19, 2008 12:18:52 PM
Fred, do you live in Panama? Bananas here are .49/lb...even the ones that have been stepped on and mushy are sold at .33/lb.
BR: another blogger had a similar observation today re: $1.00 bagels.
P.S.: Someone jacked up the price of my rum, too.
Posted by: Mr. Obvious | Feb 19, 2008 12:23:09 PM
Food and fuel prices are inelastic. Strictly supply and demand with no consideration for the contraction or growth in money supply. Demand exceeds supply more every single day in these commodities.
As credit contracts which it currently is, these will not move down like the industrial metals ect. when it really goes to Hell in a handbasket.
Inflation in things we must have, and deflation for things we formally wanted which is damn near everything else under the sun.
Posted by: SPECTRE of Deflation | Feb 19, 2008 12:25:12 PM
I'm with Donna. I only eat free range road kill. If it's twitching, even better.
Remember, morning road kill is the most important roadkill of the day!
Hoard sugar............my book.
Posted by: Ross | Feb 19, 2008 12:29:17 PM
What's happening with ethanol is criminal. Negligible benefit for energy independence, and taxpayers have to pay twice -- once in the form of subsidies, and again at the supermarket.
If there's any upside, maybe higher corn prices will mean less high fructose syrup. Aren't Americans 1/3 corn or something?
Posted by: seamus | Feb 19, 2008 12:32:14 PM
That is very close to what I experienced last year, a nearly 9% increase in food costs.
Posted by: Lord | Feb 19, 2008 12:32:27 PM
Any commodity trader could have told you this for the past two years, at least. Check a corn chart; $5.00 is a wet dream for farmers but for the consumer: $2.80 is a solid high price.....til the fake subsidized ethanol. But wheat is near the moon at the unheard of price of $11 which is close to four times "normal." Can say same for almost all farm products. Inflation measured excluding energy and food is so bogus as to be laughable; this bogus stat is in there so
SS payments ADJUSTED FOR INFLATION can be set artificially low.
Hopefully China will have problems and prices will come down.
Posted by: Howard Veit | Feb 19, 2008 12:36:15 PM
Blatant self-promotion here.
I deal with this today on my blog -- the whole inflation thing, that is.
http://www.bonddad.blogspot.com/
Posted by: Bonddad | Feb 19, 2008 12:44:59 PM
In Maine, a five pound bag of store brand white flour has gone from $1.59 to $2.19 since early this winter.
Posted by: Douglas Watts | Feb 19, 2008 12:50:09 PM
Then why did Buffett just increase his stake in Kraft?
Posted by: Dave | Feb 19, 2008 1:16:29 PM
Could it be time to review those restrictions on imported sugar?
Posted by: Phil Spector of Deflation | Feb 19, 2008 1:30:51 PM
I know this is off topic, but what happened to Moody's giving the bond insurers (MBIA) until last week to secure capital before they were downgraded?
Posted by: Jonathan Garber | Feb 19, 2008 2:07:35 PM
Now do you think they have price increases at Whole Foods too?
Posted by: Street Creds | Feb 19, 2008 2:09:28 PM
The more I learn about things, the more I think we're going to have biflation (sic) . . . deflation in assets that the Feds want to keep high (stocks, housing, credit) and inflation in assets they want low (commodities, like the CRB / metals). I also believe the more that the Feds try to pump up what they want they more they will just pump up what they don't want-(money, like electricity flows to the path of least resistance-i.e. where's the money being made).
Posted by: Shane | Feb 19, 2008 2:09:51 PM
Pfft... Next you'll be telling me that high fuel prices are also contributing to inflation.
Posted by: ThatGuy | Feb 19, 2008 2:16:23 PM
This is so 1975: A newbie, unknown, messianic candidate for president promises to save us from ourselves while the world past our shores grows ever more powerful and we ever less hegemonic. A federal government prints more and more money for less and less real output, fueling inflationary flames while trying to juice an economy that refuses to grow in any real way.
Malaise sets in. America, grown fat and stupid, looks to be at the end of her ride through history. President Obama gives chats in his sweater from the side of an ethanol-fueled fire.
It bottoms around 2012 w/ a new president and a willingness to swallow the medicine needed to beat inflation to clear the way for real growth.
Yes, this is so 1975. At least my teenage son and I will have something in common--coming of age in a time of economic decline.
Posted by: Don | Feb 19, 2008 2:19:40 PM
Don,
Maybe 1970 is a better analogy than 1975?
Posted by: Estragon | Feb 19, 2008 2:45:36 PM
"They often disregard food prices when measuring inflation."
Often?
Silly me!
I thought the omission was systematic. Isn't the methodology of measuring inflation specifically designed to ignore this mundane stuff?
Posted by: Francois | Feb 19, 2008 3:27:23 PM
