+------------------------------------------------------------------------------+
Record Food Prices Causing Africa Riots Stoking U.S. (Update1)
2011-01-18 10:55:02.834 GMT
(Adds rice price in seventh paragraph.)
By Alan Bjerga and Tony Dreibus
Jan. 18 (Bloomberg) -- The same record food prices causing
riots in Algeria and export bans in India are allowing President
Barack Obama to combine the biggest-ever U.S. farm exports with
the tamest inflation since the 1960s.
Global food costs jumped 25 percent last year to an all-
time high in December, according to the United Nations.
Countries probably spent at least $1 trillion on imports, with
the poorest paying as much as 20 percent more than in 2009, the
UN says. In the U.S., the largest exporter, retail food rose 1.5
percent last year and will gain as little as 2 percent in 2011,
the Department of Agriculture estimates.
Governments from Beijing to Belgrade are boosting imports,
limiting sales or releasing stockpiles to curb food inflation.
Higher prices will push U.S. agricultural exports up 16 percent
to a record $126.5 billion this year, according to a USDA
forecast. While U.S. consumers haven't been squeezed so far,
grocers from Winn-Dixie Stores Inc. to SuperValu Inc. have said
they plan increases. Commodities will keep rising, according to
a Bloomberg survey of more than 100 analysts and traders.
"We are absolutely spoiled," said Jason Britt, president
of Central States Commodities Inc., a research and analysis
company in Kansas City, Missouri. "We have the luxury that we
spend a small percentage on food. But I wouldn't be surprised to
see larger bites of our incomes used."
Raw-Material Costs
About 19 cents of every dollar spent on food covers raw-
material costs in the U.S., so retailers can limit increases by
cutting spending on labor or marketing, said Ephraim Leibtag, a
food economist at the USDA in Washington. The consumer price
index rose 4.2 percent since the end of 2007, the smallest
three-year increase since 1965, Labor Department data show.
Producer spending for processed foods rose 4.9 percent in
the U.S. last year, while consumer prices increased 1.5 percent,
Labor Department data show. A record 43.2 million Americans
received food stamps in October. The jobless rate is running at
9.4 percent, and Federal Reserve Chairman Ben S. Bernanke said
Jan. 7 the labor market may take five years to recover.
Corn advanced 52 percent last year in Chicago, wheat jumped
47 percent and soybeans gained 34 percent. Cattle futures
touched a record on Jan. 13 in Chicago, a day after coffee
reached a 13-year high in New York. Rice futures jumped as much
as 3.6 percent in Chicago today.
Wheat may rise as much as another 16 percent this year,
with sugar, corn, soybeans, coffee and cocoa also gaining,
according to the Bloomberg survey of analysts, traders and
investors in December.
Farm Income
The farm boom is aiding Obama's goal of doubling U.S.
exports in five years, with this year's shipments accounting for
4 percent of the $3.14 trillion needed to meet the target.
U.S. farm income last year probably exceeded the 2004
record of $87.3 billion, and cropland values gained as much as
10 percent, according to Neil Harl, an agricultural economist at
Iowa State University and former adviser to the governments of
Ukraine and the Czech Republic.
Moline, Illinois-based Deere & Co., the world's largest
farm-equipment maker, will report record profit of $5.47 a share
this year, according to the mean of 11 analyst estimates
compiled by Bloomberg. Earnings for Plymouth, Minnesota-based
Mosaic Co., North America's second-largest fertilizer producer,
will more than double to $4.57 a share in the year ending in
May, the mean of seven estimates shows.
Cover Costs
Northfield, Illinois-based Kraft Foods Inc., the world's
second-biggest food company, raised prices of Maxwell House and
Yuban coffee in the U.S. three times last year. General Mills
Inc., the Minneapolis-based maker of Cheerios and Lucky Charms,
said in November it would increase some cereal prices.
Products for supermarkets rose 1.8 percent in the three
months ended Sept. 22, while consumer prices gained 1.6 percent,
Winn-Dixie Chief Executive Officer Peter Lynch said on a Nov. 2
conference call. Some will probably keep increasing to cover
costs, and the Jacksonville, Florida-based company has a
"relatively good" chance of passing that to consumers, he
said.
Starbucks Corp., the world's largest coffee-shop operator,
said in September it would raise some prices after the jump in
coffee and milk costs. Domino's Pizza Inc., the biggest U.S.
pizza-delivery chain, said in October it would charge customers
more after a 29 percent jump in cheese.
Steaks, 'Baconator'
Morton's Restaurant Group Inc., a Chicago-based steakhouse
chain, is considering its third increase in the past year, Chief
Financial Officer Ronald DiNella said at a conference in Dana
Point, California, on Jan. 12. Wendy's/Arby's Group Inc., the
maker of the 1,360-calorie Baconator Triple burger, said in
November it was raising prices in some stores.
SuperValu, the owner of Save-A-Lot and Cub Foods stores,
expects most of its rises to be in the "lower single-digit
range," with "double-digit increases" for some commodity
items, Chief Executive Officer Craig Herkert said on a
conference call Jan. 11.
Some increases may not stick as companies compete for
market share. "Low price is the focus in food," said Bill
Simon, president and chief executive of U.S. stores at Wal-Mart
Stores Inc., the world's largest retailer.
While the deflation of last year will shift in 2011 to a
"slightly inflationary environment" in food, Bentonville,
Arkansas-based Wal-Mart expects to provide as much as 20 percent
savings per shopping trip compared with competitors, Simon said
on a conference call Oct. 13. "We're not going to get beat."
Wholesale Prices Rising
Wholesale costs in the U.S. rose 1.1 percent in December
from November, the most in 11 months, led by rising commodities
including fuel and food, the Labor Department reported Jan. 13.
Food rose 0.8 percent in December from a month earlier, spurred
by the biggest gain in soft drinks since January 2007 and the
largest surge in fruit in three years. Energy jumped 3.7
percent.
"At the margin, the consumer will swap down from rib eye
steak to butt steak and then to chicken, but in reality very
little shall happen," said Dennis Gartman, a Suffolk, Virginia-
based economist and author of the Gartman Letter LC. "Of far
greater concern to the consumer is rising gasoline."
The Standard & Poor's GSCI Agriculture Index of eight
futures climbed 52 percent in the last 12 months, led by cotton,
corn and wheat, as flooding in Canada, China and Australia and
drought in Russia and Europe ruined crops. The UN food index,
which tracks wholesale costs of 55 foods, now exceeds levels
seen in 2008, when violence erupted from Haiti to Egypt.
Algeria, Tunisia
Unrest is starting again. Three people were killed and 420
injured in protests over milk and flour costs in Algeria this
month. Tunisian President Zine El Abidine Ben Ali tried to end a
month of protests by promising lower prices for bread, milk and
sugar, before handing over power to his prime minister on Jan.
14 and leaving the country.
The Serbian government said Jan. 10 it will consider an
export duty on wheat to discourage shipments. South Korea said
the following day it plans to increase the supply of some food
products to help damp prices.
India, home to 1.2 billion people, halted onion exports in
December after prices more than doubled in a year. Opposition
parties have said they plan nationwide protests. China sold
commodities including sugar and corn from strategic reserves
last year to contain inflation that reached 5.1 percent in
November, the most in 28 months.
No such problems are emerging in the U.S. for now. Consumer
prices will rise 1.5 percent this year, compared with 1.6
percent in 2010, according to the median of as many as 61
economists' estimates compiled by Bloomberg. While the USDA is
forecasting gains in retail food prices of 2 percent to 3
percent in 2011, even at the top of that range the gains would
still be below the average over the last decade.
"We are a food-abundant country and the last place where
food inflation is going to rise," said Erick Erickson, an
economist at the Washington-based U.S. Grains Council, which
promotes crop exports. "We have such a rich and robust food-
supply situation compared to other countries."
For Related News and Information:
Top commodity reports: CTOP <GO>
Stories Mentioning food shortages: NSE FOOD SHORTAGE <GO>
Retail Food Prices ALLX APD <GO>
Top agriculture news: TOP AGR <GO>
Agriculture data, prices: AGRS <GO>
Top consumer news: TOP CON <GO>
Agricultural supply, demand data: GCSD <GO>
Farm-product prices, data: AGGP <GO>
--With assistance from Duane Stanford in Atlanta, Leslie Patton
in Chicago, Matthew Boyle and Debarati Roy in New York, Rich
Miller in Washington and Rudy Ruitenberg in Paris. Editors:
Steve Stroth, Stuart Wallace.
To contact the reporters on this story:
Alan Bjerga in Washington at +1-202-624-1857 or
abjerga@bloomberg.net;
Tony C. Dreibus in London at +44-20-3216-4753 or
tdreibus@bloomberg.net.
To contact the editor responsible for this story:
Steve Stroth at +1-312-443-5931 or sstroth@bloomberg.net.
