Monday, February 14, 2011

Urgent - Food Prices Set to Skyrocket

Food inflation sees a marginal drop

   As if Americans didn't have enough problems with food inflation due to Helicopter Ben's printing addiction, now we get this latest news.

The cold weather experienced across much of the US in early February made its way deep into Mexico and early reports estimate 80-100% crop losses which are having an immediate impact on prices at US grocery stores with more volatility to come.

At this time of year, Mexico is a major supplier to the US and Canada for green beans, cucumbers, squash, eggplant, asparagus, peppers and round and Roma tomatoes. Compounding the problem is the freezing cold that hit Florida in December and January. Wholesale prices for many crops have already begun climbing, doubling and almost tripling what they were at the beginning of February.

Wholesale food suppliers have already sent notices to supermarket retailers describing the produce losses in Mexico and the impact shoppers can expect. Sysco sent out this release last week (pdf)

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stating the early February freeze reached as far south as Los Mochis and south of Culiacan, both located in the state of Sinaloa, along the Gulf of California.

The cold weather has also taken a toll on Mexico's corn crops as well.
This from the USAgNet:

       Mexican officials said up to 1.5 million acres of field corn has been lost to a rare winter freeze in the farm-rich state of Sinaloa.

The yield loss is expected to be four million metric tons or about 16 percent of the nation's corn, the British Broadcasting Corp. reported Saturday.

Mexican President Felipe Calderon called the freeze "an emergency situation that demands a clear and forceful response from the authorities, a response that is not lost in bureaucratic delays."

"It's not just the billions of pesos that may be lost. We have to recover all we can because it is vital for feeding the country," he said.

The corn tortilla is a staple in Mexico. Corn prices are expected to increase due to the losses.

Bad as it may be, that's not the only bad news for food prices.

NOAA predicts continuation of La Nina conditions well into Spring, 2011, possibly returning to ENSO neutral in or around June, but perhaps continuing La Nina conditions past June.

La Nina does not severely impact the whole country, but west of the Mississippi and east of the Rockies, it sure does. That's the wheat belt and a good part of the corn belt. The top three cattle-producing states (Tx, Ok & Mo) are very significantly impacted by El Nino and La Nina conditions. Lot of the U.S. hog production and poultry production is as well. La Nina is associated with hot, doughty conditions in the central part of the U.S.

None of this looks good for food prices, and could be extraordinarily bad. It may be mentioned that the U.S. cattle herd is presently the lowest it has been in 50 years; largely due to financially-forced liquidation and failure to rebuild herds due to the same cause. A severe drought in 2011, if it happens, will initially push a lot of cattle into the slaughter market, but then supplies will hit a wall the likes of which few of us have ever seen.
Poultry and hog production are massively more dependent on grain production than is beef, and poultry are particularly heat-sensitive.

In light of these recent developments in our food supply chair I think it would be prudent for anyone reading this article to head to your local grocery store and stock up on canned or frozen fruits and vegetables. I believe we will see prices rise quickly now that the producers have sent up the red flag on their end. Don't wait or you will be paying much more in the weeks ahead.

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