Prices of some soft goods are increasing, causing problems for consumers.

A farmer harvests cocoa pods to collect beans in a field in Azaggui, Ivory Coast, on Friday, Nov. 18, 2022.

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Rising prices of soft goods, from orange juice to live cattle, are complicating the inflation picture.

Prices of agricultural commodities have surged in recent months due to weather-related damage and rising climate risks around the world, resulting in supply shortages. The higher prices add another layer of pain to consumers’ wallets at a time when core inflation, excluding food and energy, stood at a stubborn 4.3% in August.

Futures contracts on orange juice, live cattle, raw sugar and cocoa each reached their highest levels of the year this month. All are in a “supply-driven bull market right now,” said Paul Caruso, director of commodity investments at Ancora.

The S&P GSCI Softs Index, a sub-index of the S&P GSCI Commodity Index that measures only soft commodities, has jumped more than 18% so far this year.

Orange juice prices have soared due to reduced global citrus supplies and hurricanes that hit Florida last fall, the primary producer of orange juice for the U.S. Major exporters, including Brazil and Mexico, also suffered losses this year due to the heat. Has reduced its estimated orange crop yield for. The temperatures are making harvesting more difficult.

The juice futures market reached a record $3.50 per pound this month. Live cattle futures similarly hit a record high, reaching $1.9205 a pound.

Meat prices are driven by declining US cattle herds, continued demand for beef, as well as higher input costs for labor and fuel. A prolonged drought in the Midwest earlier this year damaged grasslands and hay crops, forcing some farmers to cull their herds. Data from the U.S. Department of Agriculture forecast supply will decline this year and next, and potentially through 2025 and 2026, before supplies rebuild.

It’s not just breakfast and lunch that have become more expensive – desserts have also become costlier.

Prices of raw sugar and cocoa have increased in recent months. Sugar futures reached 27.62 cents a pound last week, the highest since 2012, while cocoa futures reached $3,763 a metric ton this month, the highest level in more than a decade.

Sugar prices rose earlier this year as demand surged amid crop declines caused by bad weather in major producing countries such as India and Thailand. For example, India is the world’s second largest sugar producer after Brazil.

“Soft commodities in particular are very fragile and very sensitive to weather changes,” which can disrupt production, said Darwei Kung, head of commodities and natural resources at DWS. “That’s why we’re seeing prices rising, and there’s no short-term solution to that because there’s only so much people can produce. And it’s not as sensitive to the demand side as it is to the production side.”

Noting that food and energy are not included in core inflation calculations, Kung said consumers may experience higher daily prices than were taken into account by central bank policymakers. He said this could lead to a “fragmentation” of perspectives around inflation that would be difficult for consumers, at least in the short term.

Shopkeepers are bearing the brunt of higher prices as the world’s biggest food companies try to pass on their rising input costs.

“This is definitely not the time to talk about deflation [or] “The significant decline we have seen in gross margins has led to price decreases… We still have high input cost inflation,” Nestlé Chief Financial Officer Francois-Xavier Roger said at the Barclays Consumer Staples Conference earlier this month. Looking at the levels.”

The Nestlé executive noted the increased costs of sugar, cocoa and robusta beans for coffee, and said, “Obviously, there have been declines in some other commodities such as energy, transportation, but net-net, in terms of input cost inflation. Still a few billions up in 2023.”

Unilever Chief Financial Officer Graham David Pitkethley similarly said at the Barclays conference that the company – maker of Ben & Jerry’s, Magnum and Breyers ice cream – is still seeing inflation in its nutrition and ice cream categories. At the end of July, Unilever reported a 12.6% increase in “underlying prices” within nutrition and 11.5% within ice cream, the latter being Unilever’s most discretionary category where “private label is attractive to the consumer,” Pitkethly said. .

“We’ve got a lot of inflation and price gouging…the consumer feels that price gouging,” the CFO said.

Certainly, prices for other agricultural commodities like corn and wheat have fallen from their highs earlier this year, making the prospects better for consumers.

Benchmark soybean futures fell to a one-month low last week after the USDA reported weaker-than-expected soy export sales. Corn and wheat reached their year-to-date highs in January and February, and have since fallen.

Some analysts are counting on higher interest rates and slowing economic conditions to curb consumer interest.

“I think the volatility remains as we understand what the crop is, but as important as the crop is, it’s also about understanding the demand,” said Jeff Kilberg, founder and CEO of KKM Financial.

Kilberg said that if demand is affected, it could also indicate a decline in stocks.

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