08/18/2010

Gains in Wholesale Food Costs Ease During June

Each month the government reports on a broad range of wholesale prices. The report is released around the middle of the month reflecting the numbers of the previous month. During June 2010, the government’s report indicates that the index of wholesale food costs rose by 2.4% from a year ago. This increase suggests a moderating from the gains of 5.0-6.8% during the previous three months.  The increasingly volatile nature of wholesale prices is reflected in the PPI-Food Detail table below. As the table shows, of the 20 items listed, 5 rose by 10% or more and 4 declined by 10% or more. Double-digit gains in wholesale prices were registered in protein, dairy and sugar costs. These gains are consistent with the upward trend in their respective underlying commodity prices over the past six months.

Large gains (vs. YA) were registered in protein and dairy costs; pork +27%, beef +15%, fish +11% and dairy +14%.  Although the underlying protein and dairy commodity markets have eased over the past 60 days, these costs are now being passed through to the wholesale segment of the food chain.  The sharp gain in refined sugar prices is also notable at +19%, reflecting multi-decade highs in pricing.

In contrast, significant declines in wholesale prices were posted for fresh vegetables -11%, eggs -16%, milled rice -13% and corn sweeteners -13%.  These indices are likely to remain volatile over the next 3-6 months, although some of the dramatic weather-related pricing moves that have impacted the fruit and vegetable markets may be largely behind us.

Trends in Commodity Prices

The table below provides commodity price information as of July 12, 2010, along with historic comparisons.

This gives an indication of commodity price trends, both short-term and longer-term.  The AES index, listed at the top of the table, represents an average of the items listed, index to 2000=100.  The AES Food Input Cost Index is now 22% above a year ago, but remains nearly 17% below peak levels reached during mid-2008.

The index of commodity prices has begun to move higher over the past month, including significant gains in grains vegoil over the past month.  Weather-related events and recent USDA reports are helping fuel the gains in corn, wheat, and soybean markets.  Soft commodities including, coffee, cocoa, and sugar, as well as proteins and dairy product prices remain well above a year ago.

We will continue to monitor and analyze wholesale prices and trends throughout the second half of 2010.

Bill Lapp