Prices of some soft commodities have soared, exacerbating consumers’ woes

Rising prices of soft commodities, from orange juice to live cattle, are complicating the inflation picture.

Prices for many agricultural products have increased in recent months due to rising weather-related damage and climate risks around the world, resulting in tight supplies. The price increases are further hurting consumers’ wallets as core inflation, excluding food and energy, remained at 4.3% in August.

This month, futures contracts for orange juice, live cattle, raw sugar and cocoa each hit their highest levels this year. Both are in a “supply-driven bull market right now,” said Paul Caruso, director of commodity investments at Ancora.

The S&P GSCI Soft Index, a sub-index of the S&P GSCI Commodities Index that measures only soft commodities, is up more than 18% year-to-date.

Orange juice demand is rapidly increasing due to a global shortage of citrus fruits and the effects of last fall’s hurricanes that hit Florida, the main producer of orange juice for the United States. Major exporting countries such as Brazil and Mexico have also lowered their estimates for this year’s orange harvest due to the effects of global warming. Harvesting becomes more difficult as temperatures rise.

The juice futures market reached a record level of $3.50 per pound this month. Live cattle futures also hit a new record, reaching $1.9205 per pound.

Meat prices are rising due to shrinking U.S. cattle herds, continued demand for beef, and rising labor and fuel input costs. A prolonged drought in the Midwest earlier this year damaged grasslands and hay crops, forcing some farmers to thin their herds. U.S. Department of Agriculture data predicts that supplies could be reduced this year and next, and into 2025 and 2026 until supplies recover.

It’s not just breakfast and lunch that are getting more expensive. The same goes for dessert.

Raw sugar and cocoa prices have soared in recent months. Sugar futures hit 27.62 cents a pound last week, the highest since 2012, while cocoa futures soared this month to $3,763 a ton, also the highest level in more than a decade.

Sugar prices soared early this year due to a combination of downward revisions to production in major producing countries such as India and Thailand due to extreme weather, and rising demand. For example, India is the world’s second largest sugar producer after Brazil.

“Soft commodities in particular are very fragile and very sensitive to changes in weather, which can lead to production disruptions,” said Dawei Kun, head of commodities and natural resources at DWS. “That’s why prices are going up. There’s no short-term solution because humans can only produce so much. And they’re not as responsive to demand as the production side.”

Kun added that given that food and energy are not included in core inflation calculations, consumers could experience higher everyday prices than central bank policymakers have considered. Ta. That could lead to a “polarization” of views on inflation, at least in the short term, and a harsher outlook for consumers, he said.

Shoppers are bearing the brunt of soaring prices as the world’s biggest food companies try to pass on rising ingredient costs.

“This is certainly not the time to talk about deflation.” [or] “Prices have fallen because gross margins have fallen significantly…with input cost inflation still high You can see it,” he said.

Nestlé executives pointed to rising costs for sugar, cocoa and robusta beans for coffee, and said: “Obviously, other items such as energy and transportation are also falling, but on the net input cost inflation is still in the tens of thousands. “It’s up by $1 billion,” he added. 2023. ”

Unilever’s chief financial officer, Gram David Pitkesley, similarly said at a Barclays conference that Unilever, the maker of Ben & Jerry’s, Magnum and Briar’s ice creams, continues to see inflation in the nutrition and ice cream categories. pointed out. In late July, Unilever reported that “real prices” rose by 12.6% in the nutritional food category and by 11.5% in the ice cream category, the latter being the category in which Unilever has the most discretionary power, and that “private label is a consumer “It’s attractive to people,” Pitkesley said.

“Inflation and pricing are very high, and consumers are feeling the pricing,” he said.

To be sure, prices for other agricultural products such as corn and wheat have fallen from highs earlier this year, brightening the outlook for consumers.

Benchmark soybean futures fell to a one-month low last week after the Agriculture Department reported lower-than-expected soybean export sales. Corn and wheat prices hit year-to-date highs in January and February, but have since fallen.

Some analysts expect rising interest rates and a slowing economy to dampen consumer appetite.

“I think volatility will continue as we understand what the yield is, but just as important as the yield is understanding the demand,” said Jeff Kilberg, founder and CEO of KKM Financial. said.

Kilberg said weak demand could even portend a decline in stock prices.