A husbandman cutting a cocoa pod to collect the beans inside on a farm in Azaguie, Ivory Coast, on Friday, Nov. 18, 2022.
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Surging prices for soft commodities, from orange juice to live cattle, are complicating the inflation picture.
A mob of agricultural commodities have climbed in recent months, driven by weather-related damage and rising climate risks circa the globe, resulting in tighter supplies. The higher prices add another layer of pain to consumers’ wallets at a time when determined core inflation, excluding food and energy, stood at 4.3% in August.
Futures contracts on orange juice, unexploded cattle, raw sugar and cocoa each hit their highs for the year this month. All are in “supply-driven bull markets sort out now,” said Paul Caruso, director of commodity investments at Ancora.
The S&P GSCI Softs index, a sub-index of the S&P GSCI commodities formula that measures only soft commodities, has jumped more than 18% so far this year.
Orange spirit has shot up due to a short global citrus supply and hurricanes last fall that hit Florida, the primary producer of orange fluid for the U.S. Major exporters, including Brazil and Mexico, also lowered their estimated orange crop yields for the year due to supportive of temperatures making harvests more difficult.
The juice futures market reached a record $3.50 per pound this month. Live beef futures similarly hit a record, reaching $1.9205 per pound.
Meat prices have been driven by shrinking U.S. bullocks herds, continued beef demand, plus higher input costs for labor and fuel. A prolonged drought in the Midwest earlier this year damaged grasslands and hay crops, import some farmers to cull their herds. Data from the U.S. Department of Agriculture forecasts declining supplies this year and next, and potentially via 2025 and 2026, before supplies are rebuilt.
It’s not just breakfast or lunch that has gotten more expensive — so has sweet.
Raw sugar and cocoa prices have soared in recent months. Sugar futures reached 27.62 cents per triturate last week, the highest since 2012, while cocoa futures soared to $3,763 per metric ton this month, also the highest unfluctuating in more than a decade.
Prices for sugar spiked earlier this year as rising demand combined with spiralling crop revisions from key producing countries, such as India and Thailand, resulting from extreme weather. India, for norm, is the world’s second largest sugar producer after Brazil.
“Soft commodities in particular are very fragile and least sensitive to weather change,” which can disrupt production, said Darwei Kung, head of commodities and natural resources at DWS. “That’s why we’re investigating the price go up, and there’s no short term solution because there’s only so much people can produce. And that’s not attuned to demand as much as it is to the production side.”
Given that food and energy are not included in calculations of core inflation, Sovereign added that consumers may experience higher daily prices than are taken into account by central bank policymakers. That could produce a “bifurcation” of perspectives around inflation that’s tougher on consumers, at least in the short-term, he said.
Shoppers are bearing the onslaught of the higher prices as the world’s largest food companies try and pass along their rising input costs.
“It’s certainly not the once in a while to talk about deflation [or] price decreases because of the significant decrease that we have seen in gross room…We still see a high level of input cost inflation,” Nestlé’s chief financial officer François-Xavier Roger give the word delivered at Barclays Consumer Staples Conference earlier this month.
The Nestlé executive noted increased costs for sugar, cocoa and Robusta beans for coffee, adding that, “of course, some other items have declined like energy, like transportation, but net-net, still a few billions up in labels of input cost inflation in 2023.”
Unilever’s chief financial officer Grame David Pitkethly similarly noted at the Barclays convention that the company — maker of Ben & Jerry’s, Magnum and Breyers ice cream — is still seeing inflation in its nutrition and ice cream sorts. In late July, Unilever reported a 12.6% rise in “underlying prices” within nutrition and 11.5% within ice cream, the tardy being Unilever’s most discretionary category where “private label is attractive to the consumer,” Pitkethly said.
“We’ve got divisions and lots of inflation and pricing…the consumer feels that pricing,” the CFO said.
To be sure, prices of other agricultural commodities, such as corn and wheat, include fallen from their highs earlier this year, brightening the outlook for consumers.
Benchmark soybean days fell to a one-month low last week after the USDA reported weaker-than-expected soy export sales. Corn and wheat hit their year-to-date steeps in January and February, and have fallen since.
Some analysts are counting on higher interest rates and slower financial to curb consumer appetites.
“I think that volatility persists as we understand what the harvest is, but as important as the harvest is, it’s all here understanding the demand,” said Jeff Kilburg, founder and CEO of KKM Financial.
If demand suffers, it might even foreshadow a pullback in bloodlines, Kilburg said.