Rapidly Rising Food Costs Sting At Supermarket John W. Schoen CNBC April 19, 2014
Alert shoppers are accustomed to watching food prices go up and down. But a string of forces— from droughts to diseases—is raising the cost of a trip to the grocery store at a rapid clip. And it looks like it will be a while before the price pressure eases. Some of that pressure is coming from California—the source of roughly half the nation's fruits and vegetables—where a long-running drought is forcing farmers and ranchers to cut production. After the driest year on record, large sections of farmland are expected to lay fallow this year as the Golden State copes with an ongoing water crisis That could have "large and lasting effects on fruit, vegetable, dairy and egg prices," according to a recent USDA report, which said the full impact has yet to be felt. Smaller cattle herds have forced meat prices higher in March—up more than 5 percent from a year ago, as demand remained strong despite tightener supplies. Ranchers are getting higher prices for cattle and food companies are able to pass them along. Pork prices also have been rising after higher feed costs last year forced hog farmers to cut production. The upward price pressure on pork intensified this winter when a deadly virus thinned pig herds. That's expected to bring even higher prices for this summer's grilling season, when demand typically picks up. Read MoreHold the bacon: Breakfast staples face surging prices "I think consumer should expect record high meat prices his year," Tyson Foods CEO Donnie Smith told CNBC last month. "You should expect to see very high prices for your ground beef, your other meat cuts, all the pork cuts will be higher this year."
Food prices are notoriously volatile, subject to short term spikes and drops based on weather-related shortages and surpluses. But the forces at work this year are longer-lasting. An ongoing contraction in the U.S. dairy herd, for example, is pushing up retail prices of cheese, ice cream, and other processed dairy foods. Farm egg prices have been among the most volatile, jumping by 20 percent in February after dropping by 28 percent in January. U.S. farmers aren't the only ones facing a production squeeze. A drought in coffee growing regions of southern Brazil, the world's largest coffee producer, has pushed up the cost of a cup of Java worldwide. Coffee futures have surged 57 percent this year and rose above $2 a pound last month for the first time in two years. With bacon and coffee prices surging, breakfast is becoming more expensive—especially if you include a glass of orange juice. Future prices are up 12 percent this year, hitting two-year highs, after Florida's orange crop was hit by an insect-borne disease that's expected to cut yields to the lowest levels in nearly a quarter century. Production could fall by about 15 percent to 114 million boxes this year, according to government forecasts, the lowest level since 1990.The recent series of food price hikes follow a relatively long stretch of stable consumer prices. Since 1990, retail food prices have risen by an average of 2.8 percent a year, according to USDA. From February through December of last year, average supermarket prices fell by 0.2 percent. Consumers are also coping with higher costs beyond their supermarket shopping cart. After a brutal winter in much of the country kept shoppers home, a pickup in demand has sent clothing and used car prices higher in March. Rents are also going up in most of the country, up 2.7 percent in the latest 12-months, a pace not seen since the housing market collapsed in 2007. Medical costs are also rising. Because food prices are typically more volatile than other consumer costs, economists and policy makers at the Federal Reserve usually ignore them when looking at the so-called "core rate" of inflation. But after a long period of inflation running less than 2 percent a year, the latest surge in prices bears closer watching, according to Capital Insight senior economist Paul Dales. "We suspect that core inflation will rise to 2 percent this year and beyond it next year, which would catch the Fed off guard," he wrote in a recent note to clients..
IPO Market Is Casualty Of Stock Market Pullback Adam Shell USA Today April 18, 2014
Weibo, better known as China's answer to Twitter, was the big winner among five initial public offerings that made their debuts Thursday. Yet, it wasn't exactly a high-flying performance to make investors chirp. The IPO market, which is coming off its best year since 2000, is showing unmistakable signs of returning to earth — the latest casualty of last week's stock market plunge, which prompted investors to dial back risk-taking. That slowdown may take some of the excitement out of the coming IPO for Chinese e-commerce giant Alibaba, which could submit its official filing to U.S. regulators as early as next week. . It's being widely touted as the biggest IPO since Facebook raised more than $16 billion in May 2012. The five IPOs that started trading Thursday posted an average return of just 8.7%, below the average 17% first-day pop so far this year and for 2013, according to IPO investment advisory firm Renaissance Capital. Chinese microblogging site Weibo jumped 19.1%. Three of the deals were priced below their projected range, while two priced at the low end of the range. Chinese real estate site Leju rallied 18.6%, but
travel industry player Sabre, sporting goods retail chain Sportsman's Warehouse and drugmaker Vital Therapies all finished flat or with low single-digit percentage gains. The fact that Weibo had to price its IPO at $17, which was the bottom end of the $17 to $19 range, and slash the number of shares it was offering by more than 3 million, signals that the IPO market is coming back to earth, says Kathleen Smith, a principal at Renaissance Capital. She called it a "necessary correction." The days of eye-opening day one pops, such as the 206.7% gain that Dicerna Pharmaceuticals posted on Jan. 30, and Castlight Health's 148.8% jump on March 14, seem to be fading. The IPO market has lost some of its luster since a major correction in high-price biotech and Internet stocks last week. As the stock market goes, so goes the IPO market, says John Fitzgibbon, founder of IPOScoop.com. Last week, the Nasdaq suffered its worst weekly swoon in nearly two years and was down 9% from its recent high before rebounding. "You need a healthy stock market to have a good IPO market," says Fitzgibbon. "The market (turbulence) is what put this (IPO rally) to bed this week. Without the wind at your sails, you can't go anywhere." The more bearish tone is best illustrated by the recent performance of the Renaissance IPO Exchange Traded Fund. At its 2014 high on March 5, it was up 8.4% for the year. But it has since given up all In the past week, the IPO market has gone from a seller's market favoring the bankers to a buyer's market that favors individual investors, says Josef Schuster, founder of IPOX Schuster. The IPO window, he adds, hasn't closed completely, but if bankers want to get deals done, they'll have to price the shares more conservatively going forward. Alibaba's IPO might not be as gargantuan as many analysts believe due to the recent market jitters, he adds. "It is definitely going to hurt Alibaba on its initial valuation," said Schuster.
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