Wednesday, August 29, 2007

Inflation in groceries, Fed between a rock and hard place

I wrote Sunday: Will the Fed really cut rates?

It seems the pressure from all sources (financial, political, consumer, global) points that this must happen. But the Fed wants to hold the line on inflation.

I mentioned in that post some grocery inflation due to Tyson Foods (TSN):
"But Tyson was able to diffuse cost pressures during the quarter by passing them along to consumers. It hiked chicken prices by 18.8% from a year ago, beef by 13.0%, and pork by 6.1%. That depressed the amount of meat the company sold but helped it boost margins."

Sanderson Farms (SAFM), another chicken producer had its earnings yesterday and some striking numbers - much of it due to this misguided attempt to force feed ethanol down people's throats (when studies show it uses more energy to produce, than it creates!) - via Forbes/Reuters:
  • Increasing feed costs drove Sanderson's worse-than-expected performance. During the third-quarter prices for corn and soybean meal, Sanderson's primary feed ingredients for its chickens, increased 68.4 percent and 12.7 percent rom a year ago. Booming ethanol production has driven those prices higher by gobbling up corn supply and diverting other users to the corn fungible soybean.
  • Sanderson's Chief Executive Joe F. Sanderson Jr. said the high price of grains will continue to pose a threat. "Looking ahead, we expect the market for both corn and soybean meal to remain high and volatile into fiscal 2008,” said Sanderson.
  • During the quarter, prices for leg quarters were up 49.5 percent, while breast meat averaged 24 percent higher, and whole chicken prices were up about 17 percent.
The Fed's main goal is keeping inflation low - hence its bias until that surprise discount rate cut, was upwards... to fight this very real inflation in things people buy EVERY day. If the credit markets were not so damaged, I'd doubt there would even be an inkling to cut rates. Now it seems a foregone conclusion. The Fed is definitely between a rock and a hard place.

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