Lower Commodity Prices: An Unexpected Gift?

Articles
January 19, 2010

Lower Commodity Prices: An Unexpected Gift?

Dire forecasts for a quick return to food price inflation were zapped when the U.S. Department of Agriculture estimated record corn and soybean crops for the full-year 2009.

Dire forecasts for a quick return to food price inflation were zapped when the U.S. Department of Agriculture estimated record corn and soybean crops for the full-year 2009.

The agency estimated an 8.8% annual rise in corn production to 13.2 billion bushels, and a 13% surge in soybean production to 3.36 billion bushels.

Offsetting these high production estimates somewhat is high international and domestic demand for U.S. crops. USDA raised its forecast for fresh corn crop prices by 4.2% to $3.70 a bushel (give or take 30 cents a bushel), and also for soybeans by 1.6% to $9.65 a bushel (give or take 75 cents).  USDA also expects “the ethanol industry to consume one-third of the 2009 corn crop, or 14% more corn than from the 2008 harvest,” reported Bloomberg News and The Wall Street Journal.

Ethanol was widely blamed as the trigger for the commodity price surge in 2008, but the price impact that demand for the fuel alternative would have in 2010 remains unclear. 

Meanwhile, meat producers are queued up to benefit from cheaper feed-grain prices, and lower futures for corn and soybean meal since USDA issued its estimates, according to MarketWatch. Another factor in their favor: production cuts in chicken and pork the past year, which trimmed supplies of these meats.

This is generally good news for consumers that were bracing for higher prices on many products, but can now anticipate a more moderate environment in 2010. However, chains that were looking for higher comp sales to be built in will have to re-strategize to achieve growth in 2010.  This could lead to some new plans with key CPG partners that want to close price gaps between their name brands and store brands, or collaborate on deeper or more frequent promotions that win market share and help reinforce the value image of retailers.