By Nomi Prins, Editor, Inside Wall Street with Nomi Prins
Last week, I wanted to make a new recipe for several guests visiting me from out of town…
So I visited my local Costco to fetch some fresh ingredients.
But as I walked through the aisles, I quickly noticed certain items missing from the shelves. The rice section was so depleted, it reminded me of Covid times.
Now, I know I’m not the only one who’s dealt with items being out of stock… or accepted a hefty price tag.
If it seems like you’re paying more for bread or cereal, there’s a reason for that.
Yes, headline inflation has come down to 4% from 9.1% last summer. But prices are still increasing. They’re just doing so at a slower pace.
And some prices are increasing more quickly than others.
Let me explain…
Breaking Down the Numbers
By now, you’ve probably heard about the price of eggs and bacon. But that’s yesterday’s news.
There’s another, emerging trend…
And it’s that grain prices are running very hot.
According to the Bureau of Labor Statistics (BLS), the prices of “cereal and baked goods” increased by more than 4% over last year. That’s most grain products. Think flour, rice, pasta, bread, and yes, even cookies.
Over the past year, flour is up 19.3%. White bread is up 21.5%. Another key staple, potatoes, are up by 15%.
Here’s why these numbers are concerning…
Grains fuel the American diet. According to the Department of Agriculture (USDA), Americans get most of their calories from grains. They are crucial for the American worker, and therefore, the economy.
Take white bread, for instance.
As you can see in the chart above, white bread prices were already up since Covid. But in the past six months, they went on a tear.
(Those prices also reflect rising flour prices, which serve as a key ingredient in bread.)
Fed Chair Jerome Powell may be concerned about the inflation rate hovering above his target rate of 2%…
But so far, he hasn’t said anything about the price increases in this staple food group.
And there’s more to the story…
Why Are Wheat, Rice, and Corn Prices Up?
Grain prices are putting a strain on your bank account.
In June, wheat futures prices rose past $6.90 per bushel. That’s the highest level in two months. Corn prices also surged to their highest levels this year.
Rice is rising, too. That’s because rice production is facing its worst year in two decades. According to Fitch Solutions, the 2022-2023 rice season could see an 8.7-million-ton shortfall.
So we could see the largest global rice shortage in two decades.
And this trend won’t stop anytime soon. The rise in grain prices and related processed foods will continue. Here’s why:
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The Russia-Ukraine war. Ukraine is a key exporter of wheat. But recently, Russia announced it might not extend its trade corridor agreement. This agreement would allow for secure grain exports beyond July 17.
A halt in Ukraine Black Sea grain exports would hamper supply to the Middle East and African importers.
In addition, Ukrainian wheat supplies fell under pressure triggered by a key hydroelectric dam blast. That cut off water to key farmlands and wheat-growing areas, exacerbating drought conditions and harming yields for this year’s crops.
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Drought conditions in the U.S. Midwest could reduce U.S. wheat and other crop production.
Droughts also hurt corn pollination and resulting crop yields. For example, the Midwest drought area doubled in size from 7.7% in late April to 15% in late May. And the area experiencing drought or abnormal dryness ballooned from 28.9% to 66.2%.
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Escalating heat conditions in Asia have hindered rice supplies and production levels in key rice-producing countries like China and Pakistan.
May shattered all-time heat records in China, Southeast Asia, and the region. Harsher weather is also on the horizon.
We know what you might be thinking. Areas like Ukraine or Southeast Asia seem a world away. But what we’ve seen since 2020 is that what impacts one part of a supply chain matters globally.
Plus, even if it rains more in drought areas, losses from the drought will impact overall grain and corn production for the full year.
And unfortunately, lower supply means higher prices.
There’s one more indicator of grain supply disruptions…
The Association of American Railroads just reported that grain shipments by rail are down 9% compared to last year. That’s the largest declining commodity class drop in terms of shipments.
This suggests possible shortages in the raw grains needed for cereals and bread going forward. And it could also cause prices to rise.
So, what does this mean for you – and what should you do about it?
Does It Cost More to Eat in or Eat Out?
With certain food prices rising, it’s tempting to consider whether it’s cheaper to eat out or at home.
For 2023, the USDA expects all food prices to rise by 6.2%. That’s slower than in 2022, but still at a higher-than-average historical rate.
But according to the USDA, eating out remains slightly more expensive.
Data shows that prices for food-at-home (grocery or supermarket purchases) rose by 0.1% from March 2023 to April 2023. These were 7.1% higher than in April 2022.
Food-at-home prices are forecast to rise by 5.8% over last year. And food-away-from-home prices are forecast to rise by 8.3%
So, on the margin, it’s still cheaper to eat at home and control your own budget rather than letting restaurants pass on extra costs to you.
What Can You Do About Increased Prices?
Rising prices for staples like bread and cereals can cramp your household budget.
For this period of price pressures, it helps to recalibrate your spending.
Here are some things you can do:
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Buy in bulk. During the pandemic, people turned to bulk food stores such as Sam’s Club, Costco, or BJ’s Wholesale to save money on food purchases. This is a wise course of action for rising bread and cereal product prices.
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Buy generic brands. Generic is often cheaper than comparable name-brand items, and it usually has the same ingredients.
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Reduce restaurant visits. Because I travel so much, I eat out more than I’d like to. So, when I am home, I prefer home-cooked meals. You can monitor and reduce the impact of rising costs that way.
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins
P.S. Rising food prices are just one part of the inflation problem we’re facing today.
At the end of this month, the Federal Reserve and financial elite are set to release a new technology that can change the very nature of our money.
It will make it easier for the Fed to inflate our monetary supply – and take away from our purchasing power.
That’s why I filmed a special video presentation to reveal exactly what’s about to happen… and how you can prepare yourself ahead of time. It involves a little-known asset with the potential to deliver as much as 50x profits.
To watch the video, click here.