American Elephants

Food Prices Up, Gas Prices Up, Confidence Down. by The Elephant's Child

Wholesale prices rose 1.6 percent due to the biggest jump in food costs in more than 36 years, and higher energy costs. Food prices soared 3.9 percent last month, the biggest gain since November of 1974.

Those who shop for groceries are already well aware of the rise.  Some producers are keeping the price steady or less, but the packages are smaller. I have, for as long as I can remember, purchased granulated sugar in 5 lb. packages, now they are 4 lb.  In many cases, boxes are the same height and width,  just thinner.  Producers hope to create the illusion that you are getting the same amount for your money.

A business column in the Wall Street Journal from February 25, said that food prices will jump between 3% and 4% this year according to Agriculture Dept. forecasts.  The cost of processing food is soaring partly because foreign demand for U.S. agricultural commodities is surging at the same time that the rising price of gasoline is encouraging the biofuel industry’s appetite for corn to make ethanol. Prices of corn (up 88%), wheat (up 76%), and soybeans (up 37%) have surged from just 12 months ago.  These basic commodities are in most processed food. Transportation costs are obviously up, as you can see at the pump.

Food companies want to raise prices and supermarkets don’t.  The article says “The stubbornly high unemployment rate is still casting a shadow over many consumers, who are pinching pennies despite the recession’s end.

In another article from the same source, New York Fed President William Dudley tried to explain the Federal Reserve’s monetary policy.  The Fed doesn’t thing food and gas prices matter to its policy calculations because they aren’t part of “core” inflation.  Mr. Dudley tried to explain that other prices are falling. “Today you can buy an iPad 2 that costs the same as an iPad1 that is twice as powerful,” he said. “You have to look at the prices of all things. Someone in his audience said “I can’t eat an iPad.” Another asked “When was the last time, sir, that you went grocery shopping?”

In the Middle East, women in Tunisia and Egypt in TV interviews screamed about the cost of food.  Food price inflation was a factor, but no one knows how much.  Egypt imports more than 50% of its wheat.  Several countries went on a grain buying spree to avoid fears of famine among their people.

Global food production may have to double by 2050, say some agricultural economists.  Since 1900, corn yields have quintupled and wheat yields quadrupled because of improved seeds, more fertilizer, irrigation and better farming practices. Today biotechnology can make crops more resistant to weeds, bugs and drought.  Sub-Saharan African agriculture lags so far behind state-of-the-art farming practice that there are immense opportunities for catching up.

Confidence? Just 22% say that the U.S. is headed in the right direction.


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