Thursday, June 2, 2011

Groceries worth their weight in gold

By Bob Confer

If you share in your family’s grocery shopping duties you know there seems to be no end in sight to escalating costs for everything from junk food to health food and meats to cheeses.

How desperate is this situation for consumers? Better yet, how desperate will it become?

It’s tough to tell. Even the government doesn’t know.

The folks at the Department of Agriculture came into the year thinking we might see food inflation of around 2%, a leap from 2010’s spike of 0.8% but still relatively average compared to historical trends. But, by early March they altered their predictions for 2011’s prices, jumping the rate to a really uncomfortable 4.5%. One might expect them to increase their estimates again quite soon considering that factors are now in play that were unknown a few months ago.

One of them is gasoline. Back on January 1st a gallon of gas was around $3. Very few economists and investors assumed back then that it would reach the $4 mark so quickly, which it basically did last month at $3.99 nationally. Since then, it’s dropped to “only” $3.81, which is still a princely sum ($1 more than last year at this time) and could rise yet again this summer. Consider how much gasoline is used to grow your food and then get it to the processors, distributors and stores. It’s a huge embedded cost that the consumer must absorb.

The other major unknown has been the weather. Because of it, there will be a serious disruption in supply, perhaps one of the worst in recent memory.

The Mississippi River’s historic overflows (and the subsequent forced flooding by the government) have already taken 3 million acres of farmland out of commission for most of this year (and maybe more years to come). Many farmers and other agricultural professionals think that the damage may exceed 5 million acres before all is said and done.

This has also been one of the wettest springs on record across the Northern Tier of the United States, especially in the Northeast. This has delayed – and, in some places, even prevented – planting, with many farms 6 to 8 weeks behind schedule. With so many variables that Mother Nature can present even in good years, no one is quite sure how healthy their crops will be come harvest time.

Then we go from one extreme to another in Texas, Kansas and Oklahoma. Droughts of epic proportions have ravaged the area. This has nearly destroyed the entire Texan wheat crop (three-quarters of it is rated “poor” or worse) while wildfires have scarred 2 million acres of land in the Lone Star State, a fifth of which was dedicated to cattle grazing. In Kansas 39 counties were recently declared disaster areas by the USDA, while in Oklahoma two-thirds of the state is under drought which, so far, has cut the state’s wheat output in half.

Based on the effect these developments while have on previous estimates, where will prices end up at the grocery store? If I had to hazard a guess, I’d say that before year’s end total food inflation will be around 8%. Even 10% might not be out of the question (beef and pork are already 10.4% more expensive than this time last year).

8% is almost unfathomable. Remember back to the period from July 2007 to July 2008 when food inflation was at 6%. It’s not coincidental that was when the recession was really gaining steam. With less jobs to be had now because of the sluggish economic recovery – and many former 2-income households still stuck in a single-income rut - and high gas prices eating into households’ spending abilities, it will be even more of a struggle to feed the family this year than it was in 2008.

Food is one of those things you can’t do without. So, heed my dire warnings and prepare yourself. Freeze, can, stock, purchase in bulk, buy local, grow your own…do what you can to beat this monster. Even if I’m wrong and the USDA is right you’re still looking at substantial price instability.

Bob Confer is a Gasport resident and vice president of Confer Plastics Inc. in North Tonawanda. E-mail him at

This column originally ran in the 06 June 2011 Greater Niagara Newspapers

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