Record Food Prices Causing Africa Riots Stoking U.S. - Businessweek

Record Food Prices Causing Africa Riots Stoking U.S. - Businessweek: "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.

- Sent using Google Toolbar"

Life, Liberty, & the Pursuit of Happiness