Thursday, March 06, 2008

Listening to our customer's stories...

I know it's a radical idea, but what if grain farmers especially took a break from "TELLING THE FARMER'S STORY" for just a bit and listened to the people who write checks to them instead? Here are some things they would hear:
* Hershey (HFC) raised its chocolate confection prices by 13% earlier this year to reflect higher dairy, cocoa, sugar, and peanuts costs, says Katzman at Deutsche Bank. General Mills (GIS) has raised prices for its bakeries and food service products, Yoplait yogurts, and Pillsbury refrigerated dough, among other products, since November.
"I don't think anybody involved in the food industry is anticipating any type of sustained rollover in input costs anytime soon," says Katzman. That's not only because no change in U.S. ethanol policy is expected but because of rising demand for higher-quality food by the one billion people in emerging markets who are moving to urban centers, as well as continuing weakness in the U.S. dollar, he says.

Nor do other analysts see any relief in sight across the commodities sector—animal, vegetable, or mineral. And that spells more bad news for businesses and for the consumers who buy their products. [More]

* Grain and soybean prices are expected to face a year of unprecedented height and volatility. The pork industry must unfairly adjust to this extreme risk to their margins. Given corn and soybean meal prices observed in the futures market on March 3, 2008, costs for farrow-to-finish producers are estimated to currently be in the high $50s and are estimated to reach near $60 this summer. For all of 2008, estimates are for costs near $57 and hog prices near $47, for an average loss of $27 per head. This compares with an estimated loss of $15 per head in 1998, the previous record loss year.

Lean futures prices suggest higher cash prices than forecast here. Using current lean futures (and adjusting basis about $2 lower than average) provides hedging opportunities at about $54 for the third quarter of 2008 compared to the forecast in the very low $50s. For the final quarter of 2008, futures are providing about $52 compared to the forecast of $47 to $48.

Hog prices probably will not improve sufficiently to reach breakeven levels until the late-spring of 2009. Then, the last-half of 2009 and 2010 could be a period of favorable profits. But the question remains, who will be left standing by that far-distant point? [More - and note the term "unfairly"]
* Another reason for the sharp hike in food prices is the increasing demand for ethanol, which has driven up the price of corn – and at the same time created a shortage of wheat as farmers shift their crop to the more lucrative corn.

“There are several reasons [for higher food prices], but at the core is corn, the largest and most important of agricultural commodities,” said Bill Lapp, president of Advanced Economic Solutions.

Which brings us back to the price of flour — and the pricier pizza. Jimmy Ferrell, owner of the four Fat Jimmy's pizza restaurants in Louisville, Ky., said the price of flour has forced him to pass the cost onto his customers. "You have to raise (prices) a couple times a year just to keep up," he said.

Ferrell thinks the rising flour prices have hurt small operators more than national chains.

"The national chains have a lot more pull and they can negotiate prices. I don't think we have the same buying power that a Papa John's or a Domino's obviously has."

Food industry consultant Goldin doesn’t see a light at the end of the tunnel. "There are no simple solutions," he said. "The trend will be to reduce product costs, and some of that may very well affect quality.” [More]
Now I know, all this finger-pointing at ethanol and corn is misplaced. [If GWB has come round to this conclusion, it must really be suspect, right?] The real culprits are Big Oil and Big Labor and Big Everything Else.

It's just I can't say that with a straight face anymore while selling corn for $6.

You better tell 'em.

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