CHICAGO (Reuters) - Higher food prices are here to stay.
A rising tide of global forces is supporting the surge in prices for important food staples like meat, dairy and grains, commodity experts said at the Reuters Global Food and Agriculture Summit on Tuesday.
“This is a pretty sustainable increase ... A number of factors have been building over time in terms of the commodity increase: world economic growth, rising crude oil prices, increased Chinese import demand all have conspired,” said Bill Lapp, president of Advanced Economic Solutions, a commodity analytical firm based in Omaha, Nebraska.
“The weak dollar aided and abetted by (Federal Reserve) Chairman (Ben) Bernanke’s quantitative easing program has been a part of this as well,” said Lapp, who added that since July, incremental expenses for commodities going into food production are approaching $40 billion.
“These costs do have to be passed on to consumers if there isn’t any relief in commodity prices. To date we have not seen that,” said Lapp, previously a vice president of economic research for ConAgra Foods.
U.S. corn, wheat and soybeans recently have escalated to near-record as strong demand and severe weather cut world grain stocks. Beef prices hit a 7-1/2 year high on Tuesday amid a jump in feed costs, shrinking cattle numbers and big export sales.
“Assuming we’re going to have a normal crop this year, and chances I don’t think are high for that, and potentially increased demand in Asian markets, I think it’s going to be a couple of years before we get out of this cycle,” said Jim Prokopanko, Chief Executive of Mosaic Co (MOS.N), the world’s second largest fertilizer producer.
Prices for meat, dairy and fresh fruits and vegetables, which fluctuate with market forces, are already seeing “eye-popping” increases, said Janney Capital Markets analyst Jonathan Feeney.
Producers of fresh items are “not giving any apologies when prices are going up because they don’t get any apologies when prices are going down,” Feeney said.
Anywhere from 4 percent to 17 percent of a U.S. shopper’s income goes to food, he said.
Packaged food makers, who are able to lock in purchases for some items over certain time periods, have been able to delay some increases because they are “living on their hedges,” Feeney said.
Those prices will eventually head higher as “all hedges eventually end,” Lapp added.
David Garfield, managing director of the consumer products practice at AlixPartners in Chicago, said: “We definitely think that cost pressures on the producers are durable ... The cost pressure is not going away, the question is ‘what can you try to do to combat that?'”