Prices of basic food ingredients are up more than 30% in the past twelve months:
Prices of all kinds of ingredients that are put into packaged food and drink products are rising rapidly, with many showing no signs of slowing down any time soon.
In the first half of the year, Lehman Brothers’ ingredients cost index – which covers cocoa, coffee, oats, tea, soyabeans and milk among other commodities and is based on spot rates – rose 14.9 per cent. This follows a 16.5 per cent increase in the second half of 2006.
The biggest increase has been in powdered milk prices, which have almost doubled compared with the same period a year ago. Barley prices have shot up by 53 per cent, while corn prices are up 68 per cent.
Ian Shackleton, Lehman’s food analyst, said European consumer companies appear to be facing the most sustained increases in ingredient costs in at least a decade. “We’ve been used to one or two years of ups and downs . . . but we seem to be having much more consistency of uplift [in prices].”
Meanwhile, the financial firm Bear Stearns finally informed its clients that its two hedge funds that invested in subprime (i.e. high-risk) mortgages are now worthless:
Bear Stearns told clients in its two battered hedge funds late yesterday that their investments, worth an estimated $1.5 billion at the end of 2006, are almost entirely gone. In phone calls to anxious investors, Bear Stearns brokers reported yesterday that May and June had been devastating months for the portfolios.
The more conservative fund, the High-Grade Structured Credit Strategies Fund, was down 91 percent by the end of June, investors were told. The High-Grade Structured Credit Strategies Enhanced Leverage Fund, which used extensive borrowings and assumed more risk, has no investor capital left, the firm said.
I’m especially surprised that this revelation hasn’t occasioned more comment. The easy mortgage credit of the past few years has been driven by investment firms like this one, and $1.5 billion is a small fraction of the total subprime mortgage credit that was issued. If the subprime mortgages that Bear Stearns was holding turned out to be totally worthless, how much value is likely to remain in the subprime mortgages held by others?