Friday, August 24, 2012

The Interplay of Food and Fuel In Jacking Everyday Expenses

A reminder of how interconnected everything is.
This nasty positive feedback was first seriously explored in relation to the '73 oil price spike with more scholarship after the late 70's commodity boom. By the time of the 2008 food inflation the mental paradigm had filtered down to yours truly, to the point I was computing diesel usage per acre for a couple of fancy models.
Here's the latest iteration, from Bloomberg:
Fuel Costs Plus U.S. Drought Equals Higher Food Prices
U.S. consumers, already paying more for food due to the worst drought in five decades, may soon see prices at the supermarket rise further because of fuel costs.

“Gasoline is the wild card” of food inflation, said Chad Hart, an economist at Iowa State University. “Anytime you have oil and gas prices moving up, that will hit us on the food dollar.”

Energy and transportation accounts for about 8.2 cents of each dollar spent on food, compared with about 4 cents for farm commodities, according to the U.S. Department of Agriculture. Processing, labor, packaging and other costs dominate the retail and restaurant prices of food, making the cost of corn less important to consumers than the price of the gas needed to transport it, according to USDA data.

U.S. consumers may pay 3 percent to 4 percent more for food next year, up from as much as 3.5 percent more this year, as the effects of drought work their way onto supermarket shelves, the Department of Agriculture said last month in its first forecast for 2013. Beef may rise as much as 5 percent in response to tight supplies of corn, which is used to feed cattle, the USDA said in its monthly report, which will be updated today.

Corn and soybean futures reached record highs this month on the Chicago Board of Trade, and wheat touched the highest price since 2008 as dry conditions worsened in the Midwest and Great Plains.

Oil Prices
Oil, meanwhile, is up 13 percent over the past year on international instability and tight supplies. The nationwide average price of regular gasoline at the pump gained 0.2 cent to $3.718 a gallon Aug. 22, AAA data showed. Gasoline has climbed 39.2 cents since July 1, according to the AAA, the nation’s largest motoring organization....MORE