Kroger (KR) stock is trading near a 52-week high at $24. The large grocery store chain has posted a string of strong quarterly earnings. Last quarter, which ended on Nov. 5, Kroger announced net income of $406 million on revenue of $18.7 billion -- a good margin for a grocery business.

But Kroger, along with grocery chains Safeway (SWY) and SuperValu (SVU), have a problem -- one that even extends to big box retailers like Costco (COST) and Walmart (WMT). Prices for many of the staples sold by these companies are poised to spike. That will cut margins, unless the costs can be passed on to shoppers.

The U.S. Department of Agriculture recently issued its crop report and yield for most agricultural products is expected to be tight in the coming year. Meanwhile, cattle futures reached new highs this week. Compounding the problem, high oil prices will raise the cost of transporting food to grocery outlets.

There is hope that job creation could grow as 2011 progresses, which will help some households tolerate price hikes. But the biggest headwind that Kroger and its competitors face is the price of gas. Household budgets are already under siege as gas prices move toward $3.60 and West Texas crude reaches two-year highs. Strained budgets mean the ability to pay higher food prices will be limited, and grocery chains will have to keep prices low to draw shoppers.

Kroger may have had a good 2010, but that is unlikely to be repeated this year.


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davblue1818

WHAT A GREAT IDEA LETS BURN ARE FOOD FOR FUEL MAYBE WE CAN BURN WATER FOR CLEAN AIR STOP THE MADNESS AMERICA WE NEED CLEAN BURNING COAL FOILS FUEL NUKE POWER FOR ELEC. DO YOU HAVE KNOW HOW MANY JOBS IT WOULD CRATE AND DON,T MEAN SHOVLE READY JOBS

April 10 2011 at 11:23 PM Report abuse rate up rate down Reply
mbzmc

Another shallow AOL news release! Are these writters still in high school? Job creation should offset (fed planned inflation?) Crop reports says yields are expected to be tight? I am told to expect record yields this year. How about supply and demand? China is cleaning us out of our agricultural products and energy supplies. They use dollars they have collected from Americans buying Chinese products (that put millions out of work) to buy huge percentages of U.S. agricultural products then sell them back to the U.S. for a huge profit and sell them to other countries and of course consume in China also. As far as fuel costs go I'm shure everyone now knows oil prices are manipulated by traders and are way overpriced.and much more efficient ethanoyln could be bought from Brazil but our leaders will not allow it-they protect the American producers so they can charge very high prices..I wonder why the politicians can't see past the donations from the oil companies to stop that trading? Being in the food business and buying commodities, I can tell you that as far as the world is concerned, whatever is left over after all other countries buy is then sent to the U.S. Our wonderful government has made the U.S. the most difficult country to ship products to and the most expensive country to do business with. How about that! Whatever is left over goes to the U.S. $7 bread anyone? How about the fact that Americans throw away about 40% of all the food we purchase-come'on people, stop that and how about lowering your heat and your air conditioning to reduce fuel usage....Nobody cares right now but high prices will force that on the U.S. peeps! Maybe high prices will help fight the obese epidemic in the U.S. also!

April 01 2011 at 12:48 PM Report abuse rate up rate down Reply
Ron

Use corn for fuel, what a great idea I'm sure the corn lobby is all smiles. We'll pay the price you don't have a choice.

April 01 2011 at 10:41 AM Report abuse +3 rate up rate down Reply
kv37

This will be interesting because competition between all these stores is very high. They are all scrambling for customers and if they don't keep their prices low, they will be toast.

April 01 2011 at 9:29 AM Report abuse rate up rate down Reply
daveswrath0704

they make it sound it a bad thing that say they make only 306million that a profit where is said that a company MUST make more every year mybe time have come that they have MAX out there profit and cant make more hum it just hurt them more for the greed of money because will just stop buying and then you make less THE !!and it time to pass laws that said you cant raise the price of product just to make more profit only time you can if you not making a profit and not more then you made a years before win win for all

April 01 2011 at 8:32 AM Report abuse -1 rate up rate down Reply