Higher Food Prices: Why a Russian Heatwave Could Burn Your Budget

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Supermarket checkoutCentral Russia is having the hottest summer on record -- this may not be of major interest in Chicago or L.A., which have their own heat problems to worry about. But we live in a globalized world, and Russia's high temperatures, complete with raging wildfires, are going to send food prices higher for American consumers in the next few months.

According to reports out of Moscow, the Russian Farmers Union says the wheat crop will be down by an estimated 50% this year. That has sent wheat prices soaring from $5 to $7.25 a bushel on the commodity futures market Wednesday, a 45% jump.

Ephraim Leibtag, an economist with the U.S. Agriculture Department's economic research service, says the "pass-through" rate of commodity prices is about 5% to 15% at the retail level.

With a 45% increase in wheat prices, Leibtag expects the cost of wheat-based products like bread, pasta, and flour to rise about 2% to 4% in grocery stores. Consumer goods like breakfast cereal probably won't rise as fast because they contain sugar and ingredients other than wheat.

Paying More for a Caffeine Jolt

And it's not just wheat prices that are going up, either.

J.M. Smucker (SJM), which distributes Folgers and such other coffee brands as Dunkin' Donuts and Millstone, announced on Tuesday that it's raising prices 9%, effective immediately. The company had already raised prices by 4% in May.

Wholesale coffee prices hit a 12-year high on Monday after a string of bad harvests in Colombia, the supplier of premium Arabica coffee.

And cocoa, the main ingredient in a host of chocolate confectionary items, hit a 33-year high of $3,092 a ton on July 30, following a sharp fall in production in Ivory Coast, West Africa, where plant diseases have caused the harvest to shrink by 15% in the last five years.

"A lot of the key commodities that go into food products and baked goods are trending upward right now," says Christopher Shanahan, food industry analyst for San Antonio, Texas-based research firm Frost & Sullivan.

"When there's uncertainty in the price of a commodity, processors and retailers will act on that and try to increase prices to either take advantage of the news or put a buffer on in case their material costs go up faster than expected," Shanahan says.

Knock-On Effects

One side effect of the wheat price rise is the possibility it will cause the price of other commodities, like corn and soybeans, to climb too. If that happens, prices for beef, pork and chicken will also probably go up because corn and soybeans are widely used in animal feed.

Corn, which averaged around $3.50 a bushel earlier this year, was trading at $4.15 a bushel on commodities markets Wednesday. Soybeans, which averaged $9.40 to $9.50, were trading at $10.28 a bushel Wednesday.

"If wheat supplies are down, then demand for the other commodities is going to go up," Shanahan says. "Prices of all commodities are impacted by wheat."

Shanahan says the stocks of retail grocery firms probably won't be hit by the cost increases because they pass those hikes along to consumers. But he notes manufacturers could feel the pinch, especially if oil prices continue to rise beyond the $80 a barrel level.




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ltramr

Why should our wheat prices be higher ? we have plenty of wheat, we should take care of our own, the american people are dumb as a barrel of Rocks, for putting up with these high food prices.the inviromentalists are the cause of High prices, shortages,Allthe problems we have in this country today,; all these problems are a direct result of the goofy invironmental movement. A disaster For America!!

August 06 2010 at 1:32 PM Report abuse rate up rate down Reply
ajgorm

The question is can we Feed America First , FAF is a concept. The question also is why do prices go up here not there ,simply put. Because we have been hijacked by banks and sold out to the very people that own the banks stealing america from Americans for pennies on the dollar. From oil in the Gulf to minerals and coal. We have become a commodity rather than a nation.

August 06 2010 at 11:45 AM Report abuse rate up rate down Reply
1 reply to ajgorm's comment
kristinmarie29

Absolutely right! I mean let's pretend we have thousands of farmers in this country that grow wheat. Why should Russia's low supply affect us? There is no reason we should be buying wheat from Russia to begin with.

August 06 2010 at 1:27 PM Report abuse rate up rate down Reply
andrc657

FOX NEWS says there is no global warming according to their scientists!

August 06 2010 at 11:32 AM Report abuse +1 rate up rate down Reply
thepetermedic

who cares pretty much buying the garbage they sell in the stores act like this is the first summer the world has ever seen lol just another exccuses of screwing the customers

August 06 2010 at 11:22 AM Report abuse rate up rate down Reply
krazzicraig

Humans can survey without beef. Eating meat for protein is just more convenient. There are many foods that contain high levels of protein and fiber. A society can not exist without being able to cultivate the land they control. You can not grow wheat and corn in a desert. When there is a decrease in the amount of corps ,the price will go up. The problem is how those that control the food supply manipulate it.

August 06 2010 at 11:21 AM Report abuse rate up rate down Reply
davidcolemaninc

IF YOU DID NOT COUNT ON MOST OF YOUR FOOD PRODUCTS COME FROM OVER SEAS YOU MAY NOT BE WRITING THIS ARTICAL

August 06 2010 at 11:10 AM Report abuse rate up rate down Reply
woodies123

if you haven't noticed smaller packages and higher prices at you local market, get back in your cave, alot of folks who make higher wages could care less. show me facts to counter that FACT and I wear the kings clothes.

August 06 2010 at 10:58 AM Report abuse rate up rate down Reply
ajgorm

FOOD... feed me...Wacky weather will disrupt food suplies.

August 06 2010 at 10:35 AM Report abuse rate up rate down Reply
Hi Debbie

I'm with you almasearch, we have American farmers selling their wheat and livestock at pricers set by our government and exported, we can't use those commodities here in this awful economy? It would benefit all of us........

August 06 2010 at 10:28 AM Report abuse rate up rate down Reply
ajgorm

Hot and cold weather through out the world will create food shortages

August 06 2010 at 10:27 AM Report abuse +1 rate up rate down Reply