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Thursday, Aug. 25, 2016

Commodities rise, but not at the store

Posted Monday, August 30, 2010, at 12:14 PM

Prices for agricultural commodities dashed higher over the last few months, which has many consumers concerned about rising food costs.

Since early June, corn prices rose 27 percet to $4.25/bushel, soybeans climbed 14 percent to $10.21/bu, and wheat sprouted a massive 49 percent. Rising grain prices have also pulled cattle (+11 percent), hog (+5 percent) and milk (+12 percent) prices higher, as livestock producers depend on corn, wheat and soybeans to feed their animals.

More exotic commodities are becoming more expensive, with sugar rushing 37 percent higher to 19.6 cents per pound and coffee buzzing up 33 percent to $1.78 per pound.

Despite these substantial moves in food prices, your grocery and restaurant bills are likely increasing by only a small amount.

Food vendors are wary of raising and lowering prices frequently, so they attempt to smooth out their expenses by hedging, or "locking in" prices for their inputs months into the future.

For example, a fast food chain may establish its price for the wheat, cheese and beef that make up its popular cheeseburgers months in advance. To do this, they "pre-buy" their products on the futures markets, allowing them to provide their customers with steady prices.

Consumers have also benefited from a mild drop in energy prices over the last three months. Crude oil, gasoline and diesel fuel prices have all decreased by about 4 percent, which makes the production, transportation and packaging of foods less expensive.

Nonetheless, worldwide weather problems and increased demand coming from Asia will ultimately pull retail food prices higher, so consumers may be forced to belt-tighten even more in the coming months.

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Commodity Futures File
Alex Breitinger
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Alex Breitinger, a 2009 graduate of DePauw University, is a commodity futures broker with Breitinger & Sons, LLC in Valparaiso. He can be reached at 800-411-FUTURES (3888) or online at www.indianafutures.com.
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