We all know how pricey everything is nowadays, whether it’s gas, real estate properties, or necessities. According to a recently released Consumer Price Index report, food-at-home prices increased by 1.3% when 2023 ended. This has been the lowest annual increase since 2021, competing with the 11.8% surge in December.
Overall, food prices rose by 0.2% monthly, matching November’s rate, with a 2.7% increase for the year, still below the overall inflation rate of 3.4%. Food price increases mainly due to the annual 5.2% increase in the food-away-from-home category.
Last year was a bumpy road for prices and shortages, making grocery shopping difficult for most people. While pandemic-related inflation eased, some items remained costly, forcing families to adapt. Global conflicts and extreme weather further impacted food availability and prices.
In 2024, readiness for price changes is vital. Agricultural economists provide insights into expected trends, aiding in preparation for the year ahead. People should buy three grocery items while they are still cheap and store due to expected upcoming price hikes.
Item #1: Olive Oil
The olive oil market saw record-high prices at the start of 2024, driven by ongoing market dynamics from the previous year. Beyond cost concerns, the survival of olive trees, crucial for combating climate change effects, is also at risk.
Spring 2024’s crop outlook in the Mediterranean, particularly Spain, may offer relief by indicating potential future yields. Despite a slight dip in local consumption, persistent export demand and prolonged drought in the region maintain elevated prices.
Trader Joe’s recently encountered an olive oil shortage, sparking confusion among customers. A Reddit user expressed frustration over empty shelves in multiple store locations. This prompted an investigation into whether the issue was specific to Trader Joe’s or indicative of a broader problem. Insights from olive oil experts shed light on the situation.
Much of this disruption can be attributed the shortage tied to Spain’s two-year drought, impacting global extra virgin olive oil supply. Despite using local olives in Italy, Frescobadi’s 2023 harvest adequately supplied the US and international markets.
The EU’s olive harvest spans fall to early spring, influenced by varying conditions like spring flowering and summer temperatures. Alternative bearing patterns and new irrigated plantations help offset production fluctuations. Spain leads global production but faces challenges, with extreme weather impacting output.
Due to increased demand and climate-related supply challenges, Olive oil prices will likely rise soon. Gyftakis noted a 100% price increase in the past year. However, rising demand, attributed to growing consumer awareness of health benefits, offers a silver lining.
Item #2: Coffee
According to BarChart’s data, May arabica coffee (KCK24) rose by +2.00 (+1.10%), while ICE robusta coffee (RMK24) increased by +36 (+1.09%) this morning. Today’s coffee price surge is attributed to forecasts of limited rain in Brazil’s coffee-growing regions over the next week.
The below-average rainfall in Minas Gerais in Brazil has supported rising coffee prices. However, a prediction by Rabobank says that the coffee surplus for the 2024 and 2025 marketing years also contradicts its reduced production forecast for 2023 and 2024. This is mostly because of the revisions made in Honduras and Indonesia.
Coffee stocks recovered from historic lows, with robusta hitting a 7-week high and arabica reaching an 8-month high. Tight supplies from Vietnam drove prices up despite a 32.8% decrease in Feb exports. Due to drought, Vietnam’s coffee production is forecasted to drop by 10%.
In February 2024, the World Bank’s beverage index hit a 13-year peak due to rising cocoa and Robusta coffee prices. Despite a slight uptick in 2023, prices will drop in 2025 with increased coffee and cocoa supplies. Robusta prices surged to three-decade highs, while Arabica prices rose, reflecting market tightness.
Challenges persist for Robusta suppliers in Indonesia and Vietnam, despite record consumption levels in 2023-24. Arabica prices may soften in 2024, while Robusta prices will likely stay high before dropping in 2025.
Over an extended period, inflation globally escalated living costs, prompting a shift in demand towards more affordable coffee variants like Robusta. Forecasts for Vietnamese coffee prices remain optimistic for 2024 despite concerns among export companies about potential shortages by April or May.
Estimates suggest a shortfall of 1.5–2.5 million coffee bags, necessitating reliance on current harvests to meet demand. With rising prices, industry experts anticipate coffee exports could reach $5 billion by 2024. Recent reports indicate a significant spike in domestic Robusta coffee prices in early December 2023 compared to the previous month.
Item #3: Chocolate
The global chocolate industry faces its most severe crisis. With demand outstripping cocoa supply, cocoa prices continue to soar, foreshadowing higher chocolate prices worldwide. Cocoa futures reached unprecedented levels, surging 25% last week to $8,018 per metric ton, marking a 215% increase from the previous year.
Consequently, African cocoa processors, pivotal in converting raw cocoa for chocolate production, curtailed operations due to exorbitant bean prices.
Cocoa trees thrive primarily in a narrow equatorial belt, mainly in four West African nations: Ivory Coast, Ghana, Cameroon, and Nigeria, contributing to 75% of global cocoa production.
Recently, farmers have been struggling with poor harvests because of adverse weather conditions and neglected maintenance of trees. This has created a more significant gap between the supply and demand of cocoa. The cocoa market faces uncertainty and shortages for the upcoming season, which run up to 347,000 tons. This has shown a massive difference from last season’s 74,000-ton deficit.
One of the thriving companies usually gets affected by cocoa price movements are chocolate factories. Chocolate giant company Hershey’s, has coped with the high cocoa prices despite consumer resistance to inflation. Cocoa costs soared due to West African production shortages, leading to record-high global prices, up roughly 150% from a year earlier. Despite adjusting candy prices and slightly increasing grocery items, Hershey faces limits on further price adjustments.
In the fourth quarter of the preceding year, Hershey faced a problem: despite hiking candy prices, sales slumped, hinting at lower profits in 2024 due to surging cocoa costs.
Global cocoa production dipped to 4.5 million metric tons in the recent crop year, ending Sept. 30, falling short by 330,000 metric tons compared to estimated demand, as per the International Cocoa Organization.
According to Hugo van der Goes, Barry Callebaut’s cocoa vice president, some forecasts paint a graver picture, suggesting a potential shortfall of 500,000 metric tons. The supply-demand disparity is anticipated to worsen next year, with cocoa inventories projected to cover just 31.4 percent of processing demand, a 40-year low.
As sugar prices soar, candy makers face shrinking profits due to increased cocoa costs. Mondelez, the producer of Oreo cookies and Toblerone chocolates, signaled its plan for price hikes last year, foreseeing potential consumer resistance in Europe as cocoa prices continue to climb. Similarly, U.S. consumers are adjusting their purchasing habits, waiting for sales or opting for smaller quantities in response to rising prices.
Bottomline
Amidst relief in falling prices, Americans still grapple with soaring grocery costs, up 25% over the past four years, surpassing overall inflation metrics. While some goods decline, groceries, especially beef, sugar, and juice, remain stubbornly high. High food prices persistently strain finances, posing a key economic challenge for the Biden administration.
Despitethe focus on gas and housing, a Yahoo Finance/Ipsos survey reveals over two-thirds feel inflation most through food prices. These three grocery items could see continued price hikes moving forward, so consumers may want to load up while they still can.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
