Led by Energy, Producer Prices Tick up Again

By Brad Zigler

Real-time Monetary Inflation (per annum): 8.6%

A 2.9% rise in wholesale energy costs in May pushed the Producer Price Index [PPI] for finished goods 0.2% higher in May, according to the U.S. Bureau of Labor Statistics. The uptick followed a 0.3% advance in the PPI for April after a 1.2% decrease in March.

Last month's jump in energy prices trumped a 1.6% decline in the cost of finished consumer foods. After carving out the volatile food and energy sectors, the so-called "core" PPI fell 0.1% in May.

At the earlier stages of processing, prices received by producers of intermediate goods rose 0.3% in May on the heels of a 0.5% dip a month earlier. The crude goods index climbed 3.6% last month after rising 3% percent in April.

We cover the trend in energy prices extensively at Hard Assets Investor, so the monthly releases of the PPI and its sibling the Consumer Price Index [CPI] give us an opportunity to look at developing trends in the food sector.

Food Prices

Our Breakfast Index captures the quarterly trend in the farm-level cost of a table full of food items. Currently, the index shows futures prices for eight commonly consumed foods rose 10.7% from February through May. Orange juice, wheat and coffee topped the list with an average gain of 24.8% for the quarter.

May '09 Breakfast Index

Commodity	Contract Month	02-Mar-09 Price	29-May-09 Price	3-Month Change	Annualized Change
Orange Juice	July ‘09	71.10 ¢/lb	94.15 ¢/lb	32.4%	204.7%
Wheat	July ‘09	$5.2500/bu	$6.3750/bu	21.4%	115.7%
Coffee	July ‘09	113.90 ¢/lb	137.40 ¢/lb	20.6%	110.5%
Sugar #11	July ‘09	13.88 ¢/lb	15.58 ¢/lb	12.2%	58.2%
Cocoa	July ‘09	$2,326/tonne	$2,588/tonne	11.3%	52.7%
Butter, AA	July ‘09	123.00 ¢/lb	127.00 ¢/lb	3.3%	13.5%
Pork Bellies (Bacon)	July ‘09	76.750 ¢/lb	72.600 ¢/lb	-5.4%	-19.8%
Milk, Class III	July ‘09	$12.47/cwt	$11.16/cwt	-10.5%	-35.6%
Average				10.7%	62.5%
bu = bushel; tonne = metric ton (2,200 lbs); cwt = hundredweight (100 lbs)

Prices for only two food items in the index, fluid milk and pork bellies, fell over the quarter.

The reported fall in consumer finished foods in the May PPI basket represents a convergence in supply chain price trends. Farm prices - that is, the cost of crude-level foodstuffs - have been rising this year, while finished consumer foods have declined.

Producer Price Indexes For Food

The price trend over the ensuing months will indicate the amount of pricing power producers have been able to maintain.

Comments

[Joe Bruin:]

Jim Rogers and John Paulson will be proven right over time. Rogers likes commodities especially agriculture types. Paulson has a huge amount of gold stocks - mainly GLD. He owns 8% of all GLD shares.

Jun 18 11:34 AM