Saturday, November 10, 2007

Inflationary Times Impact Dry Grocery Category

We are currently in a very volatile market in the dry grocery arena. As many of you have heard or read, climate, demand, growing/processing costs, freight costs, and the weakening dollar are impacting the food market. This update is to keep you informed as to the causes of the price increases that you are seeing or will be seeing in the future.

The tomato crop avoided the weather catastrophe of 2006, however, the growers demanded an increase of $5 per ton to cover growing costs. Water, labor, fuel all contributed to those costs. Once the tomatoes reached the canner, costs for processing, water, labor, ingredients, cans, label, fiber etc. impacted costs as well. Some tomato items increases were from .50 per case to $2.00 per case.

The pineapple market is in dire straits due to a world wide shortage of pineapple. Supplies are tight and prices are firm. We continue to buy ahead in order to supply our customers.

Peaches/Fruit Cocktail:
The peach market and fruit cocktail market have seen some softening since the crop came in. Mother Nature was kind to the fruit crop and blooms yielded good fruit in sizing and color.

The apple crop is facing the same circumstances as some of the other commodities. Weather has impacted apple sizing causing more apples to be used to create the end product. The demand in the fresh market is also straining the processed market. The Midwest and the Northwest are experiencing the same issues. The crop is down 15% from prior year and cost increases that will be passed down in the next month to the industry are over 25% and inventories will be low. This is not the time to take on any new processed apple customers.

Dry Beans:
The dry bean contracts for next year have been finalized. The crops were favorable, however, less acreage was planted thus yielding a smaller crop. Hence, prices are on the upswing for next year. We have procured 3 truckloads of pintos that will hold us on pricing through the end of the year.

The bushel price that is the key component in flour pricing has been impacted by the following three things. The weak U. S. dollar has caused an increase in exports straining domestic supplies. The weather has negatively impacted the winter and spring harvests. The push for ethanol has caused more wheat acreage to be converted to corn acreage thus decreasing supply. The market remains strong and shows no sign of decreasing.

We have been notified of increases in the neighborhood of .10/lb for the month of November and going forward. This price increase follows at least two others that have happened recently.
This, again, is due to the wheat market conditions listed above.

Due to the drought in the southeast states, which is the primary growing region for peanuts, most inventories have been depleted. Supplies will be tight and prices high into the first half of next year. Corn oil faces the same pricing issues as more corn is converted to ethanol. All oils have trended up and stabilized on the high side.

Rice is facing a price increase in December due to the increase in processing costs and freight.

Dehydrated Potatoes:

Basic American will be taking a price increase in December due to the potato crop being the lowest yield in 15 years. This year’s crop follows a short crop from last 2 years putting pressure on prices due to the lack of carryover.

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