Soaring grain and energy costs harder to pass to consumers
According to one Wall Street analyst, higher grain and energy prices are going to be harder to pass on to the consumer in 2008, with forecasts for variable cost inflation for a typical food company at 47 percent over 2007, nearly doubling the 24 percent forecast last January.
March 24, 2008 By Meatingplace.com
March 19, 2008
New York, NY -While the dollar falls and the economy fails, grain prices remain securely fastened to their booster rockets and are on track to rise by 78 percent in 2008, while energy costs could soar 58 percent, according to a Wall Street analyst.
Pairing USDA forecasts with current commodities futures prices, JPMorgan food analyst Pablo Zuanic estimated in a note to investors that wheat prices could rise a whopping 98 percent this year, soybeans could soar 78 percent and corn could climb 59 percent over already inflated 2007 prices, when corn prices rose 51 percent and soybeans rose 42 percent.
All things considered, Zuanic nearly doubled his 2008 forecast for variable cost inflation (raw materials, energy and packaging) for a typical food company to 47 percent above a year ago. Just two months ago in January, crunching the same numbers put that inflation rate forecast at 24 percent.
Zuanic warned, however, that transfering costs into product pricing could be difficult given the economy. "We continue to argue that in a tough consumer environment, pass through will become increasingly difficult. While all large cap food companies have announced price hikes, we believe those with consistent investment in innovation and brand building are in better shape to make those hikes stick."
The American Feed Industry Association predicted consumer food prices will rise another 10 percent to 12 percent this year, as the weak dollar, reduced global grain stocks, increased global animal protein demand, ethanol grain demand, high crude oil costs and increased agricultural commodities speculation create the perfect storm.