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Jan. 2 (Bloomberg) -- At an outdoor market in Hanoi, Vietnam’s capital, Trinh Thi Thanh pays 100,000 dong ($4.74) a kilogram for the pork her family eats more than any other meat. That’s down from 150,000 dong a few years ago, easing pressure on the cost of family meals that had been surging, she said.
“In the past, price fevers happened much more often,” said Thanh, 63, a housewife and grandmother who buys food for a household of seven adults and two children. “Now, even when wages or gasoline prices go up, food costs in the market don’t advance, or rise very little.”
Gains in food costs around the world have slowed as record harvests from India to the U.S. expanded supply and sent corn, soybeans, wheat, sugar and coffee into bear markets. The Standard & Poor’s GSCI Agriculture Index of eight crops tumbled 22 percent last year, the biggest annual drop since 1981. Morgan Stanley and Rabobank International cut their outlooks for farm goods in December, and costs are easing for buyers including Panera Bread Co. and General Mills Inc.
The world’s food-import bill slid 3.2 percent in 2013 to $1.15 trillion, the United Nations estimates. Global costs are down 13 percent from an all-time high in February 2011, when floods and drought ruined crops and sparked protests in Africa and the Middle East, toppling leaders in Tunisia and Egypt. The International Monetary Fund said prices will drop 6 percent this year. In Vietnam, where a third of income is spent on meals, increases slowed to a 5.1 percent annual rate in December from as high as 34.1 percent in August 2011.
“Food-price inflation could be a little bit lower at the consumer level due to what’s happening in terms of commodity prices,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Supply has risen, and the laws of supply and demand tell you that eventually these crop prices and these food goods are going to mean lower prices for consumers.”
Corn posted the biggest commodity loss last year, dropping 40 percent. Wheat tumbled 22 percent, coffee slid 23 percent, sugar was down 16 percent, and soybeans declined 8.3 percent. The MSCI All-Country World Index of equities rose 20 percent, while the Bloomberg Dollar Index, a gauge against 10 major trading partners, added 3.5 percent. The Bloomberg Treasury Bond Index lost 3.4 percent.
Corn farmers in the U.S., the world’s biggest agricultural exporter, probably harvested a record 13.989 billion bushels in 2013, and global output gained 12 percent to an all-time high, the government said Dec. 10. The grain is used mostly as feed for cattle, hogs and chickens, and to make sweeteners, cooking oil and ethanol. Prices in Chicago have tumbled 50 percent from an all-time high of $8.49 a bushel in August 2012. Wheat futures slumped 1.4 percent to close at $5.97 a bushel on the Chicago Board of Trade today.
The International Grains Council projects inventories of wheat and feed grains, including corn, will climb to 379 million metric tons, a four-year high, before the start of the 2014 harvest. Global production of wheat, which reached a record price in 2008, will be an all-time high for the fourth time in six years, U.S. Department of Agriculture data show.
Cheaper feed grains mean lower costs and expanding meat supplies from poultry, hog and cattle producers. Vietnam’s pork output in the first nine months of 2013 increased to 3.3 million tons, up 2.1 percent from the same period in 2012, according to a Nov. 25 report by the agriculture ministry.
“Producers around the world have responded to four or five years of record prices in the grain and oilseeds markets and record profits in the U.S., South America and the Black Sea,” said Bill Cordingley, head of food and agribusiness research and advisory for Rabobank in the Americas who is based in New York. “There will be price relief for the retailers, and therefore for the consumer.”
Lower raw-material costs have yet to be reflected on many grocery shelves, where raw materials usually represent only a small fraction of the expense to produce the final product, and food companies have been slow to pass on savings to customers.
“Prices at the retail level are still rather high,” said Concepcion Calpe, a senior economist at the UN’s Food & Agriculture Organization in Rome. While the UN measure of costs to import bulk food is down, those reductions “are not directly transmitted to the retail level,” she said. “We’re speaking about raw materials, and what people buy is not wheat or maize. It’s bread.”
While wheat futures are down 37 percent from a 2012 high, flour from the grain accounted for about 10 cents of the $2.045 cost of a 1-pound (0.45 kilogram) loaf of wheat bread in the U.S. in November, according to government and industry data.
In Tunisia, retail-food prices are still “significantly” higher than they were three or four years ago, said Sami Snoussi, 42, who works at the company Financial Rent and was shopping last month at the Carrefour market in Tunis. Eggs, meat and olive oil are all higher than two months ago, he said.
Higher commodity costs have a disproportionate effect on poorer countries, where people spend more of their wages on meals. U.S. shoppers spend about 6.6 percent of their income on food, the lowest of any country, while people in Pakistan spend almost half of their wages to eat, according to the USDA. In Vietnam, shoppers like Thanh spend about 35.9 percent.
The consequences of higher-cost food can be severe. Shortages and rising prices provoked riots in the past, including in 2008 when wheat reached a record $13.495 a bushel, or double what it is now. The U.S. State Department estimates climbing prices triggered more than 60 riots worldwide from 2007 to 2009. About 44 million people were pushed into poverty from June 2010 to February 2011 by higher food costs, the World Bank estimated.
Retail prices are often slow to reflect lower raw-material costs because of lags in the production cycle, said Bill Lapp, a former ConAgra Foods Inc. chief economist who is now president of Advanced Economic Solutions, an agriculture consultant in Omaha, Nebraska.
All fresh retail-beef prices in the U.S. averaged a record $5.01 a pound in November, government composite data show, after ranchers reduced the size of their herds during a 2012 drought that sent feed costs surging to a record. While corn prices have plunged, it can take three years to breed a cow and raise its calf to slaughter weight.
Beef output in the U.S., the world’s biggest producer, will drop 5.7 percent to 24.21 billion pounds (10.98 million tons) in 2014, USDA data show.
A prolonged slump in commodities will eventually benefit consumers as ample supplies spur food companies to reduce retail prices, the FAO’s Calpe said. Some restaurants and grocery stores already are seeing lower costs.
Panera, based in St. Louis, expects “very modest deflation” for wheat in 2014 and sees profit margins on fresh dough sold to franchisees of more than 1,700 bakery cafes in North America dropping on a year-over-year basis in the fourth quarter of 2013, Roger C. Matthews Jr., the chief financial officer, said on an Oct. 23 earnings call with analysts.
McDonald’s Corp., the world’s largest restaurant chain, projects its “commodity pressures should be maybe a little bit better next year,” Peter J. Bensen, chief financial officer of the Oak Brook, Illinois-based company, said during an investor meeting on Nov. 14.
Cost inflation peaked in the six months through Nov. 24 at General Mills, the maker of Cheerios cereal, and the rate will “ease in the second half” of the fiscal year that ends May 31, Chairman and Chief Executive Officer Kendall J. Powell said on an earnings call Dec. 18.
Kroger Co., the largest U.S. grocery chain, expects a “very low inflationary kind of period” into 2014, J. Michael Schlotman, the chief financial officer, said during an earnings conference call on Dec. 5. Kroger, based in Cincinnati, isn’t forecasting a “deflationary environment” this year, he said.
Kraft Foods Group Inc., based in Northfield, Illinois, said in May that it would cut the price of 12-ounce bags of Gevalia coffee by 6 percent.
Caroline Gillick, 65, has seen her grocery bill decline to about $600 or less a month, including wine and beer, she said in an interview at Jewel-Osco supermarket on the north side of Chicago. Gillick lives with her husband and often cooks for her two grown daughters, she said, adding that her savings have increased from 2012.
Retail prices for a gallon of milk averaged $3.491 a gallon in November, down 2.5 percent since the end of 2012, and white bread cost $1.382 a pound on average, down 3.8 percent, the latest data from the Bureau of Labor Statistics show.
U.S. consumers may pay as much as 2.5 percent to 3.5 percent more for food in 2014, the USDA forecast on Dec. 23, compared to a gain of 1.25 percent to 1.75 percent in 2013. This year’s food inflation may be closer to 1.5 percent to 3 percent, said Bob Young, chief economist of the American Farm Bureau Federation. While it will vary among products, there will likely be a “moderation of food prices,” he said.
The world is entering a period of “more balanced” supply and demand, and 2014 prices will “continue to ease for most markets” in grains and oilseeds, Rabobank said in an e-mailed report Dec. 13. Morgan Stanley lowered its price projections in a report on Dec. 11, saying that corn may average $4.60 in the 12 months through August, and drop to $4.20 in the next year.
A measure of speculative positions across 11 agricultural products tumbled about 40 percent last year, and bullish bets on crops are at the lowest level since August, Commodity Futures Trading Commission data show.
In the U.S., growth in consumer prices probably slowed to 1.3 percent in the fourth quarter from 1.57 percent in the previous three months, according to the median 67 economists’ estimates compiled by Bloomberg. Commodity costs account for 40 percent of the consumer price index, with food at about 14 percent of the CPI.
“The general tendency is obviously down, even if it’s stabilized more or less,” said Abdolreza Abbassian, a senior economist at the FAO. “Looking at the crops, the surplus situation, the U.S., all indications point to somewhat subdued prices.”
--With assistance from Diep Ngoc Pham in Hanoi, Jihen Laghmari in Tunis, Rudy Ruitenberg in Paris and Jeff Wilson in Chicago. Editor: Patrick McKiernan