"“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” "

Chinese premier Wen Jiabao 12th March 2009

""We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."

Timothy Geithner US Secretary of the Treasury, previously President of the Federal Reserve Bank of New York.1/3/2009

Sunday, December 23, 2007

Wheat , corn, soya prices at record levels - demand exceeds world supply, fertiliser, farm and fuel costs rise - food costs jump and inflation follows

Dubya and Gordy Brown are struggling with inflation - the dumb bastards have avoided the stunning rise in grain prices which will hit even their rigged consumer price indices hard this summer as these costs hit the retail stores.

Lord King Speech at the Mansion House 16th June 2007...

"Our central view remains that inflation will fall back this year as the rises in domestic gas and electricity prices last year drop out of the annual comparison, and the recent cuts in prices feed through to household bills."
Well that was obvious nonsense and all the double firsts at the Treasury ciouldn't see the problems of the world grain markets either - or that they would feed through to inflation. See post Lord Patel Australian drought - poor spring rains - higher world wheat prices in prospect - low stocks and heavy demand and Nov 1st 2006 World wheat shortages loom - prices soar

In 1973 along with the oil shock , the world price for wheat went up six-fold. Wheat / corn/soya prices ricochet through the food supply chain -

1. Higher prices for cereal and breads eaten directly by humans
2. Higher prices for milk and meat produced from livestock fed a grain-based diet
3. Using corn as an ethanol feedstock has changed the economics of the corn market
4. Labour shortages in agriculture will be affected as farm jobs came in from fields and tend livestock in barns.

Winter Wheat futures at record levels

The Minneapolis Grain Exchange MGEX, established in 1881, is the only market for Hard Red Spring Wheat,which is one of the highest-protein wheats grown. It is found in bagels, high quality breads and cereals.

Director of Marketing at the MGEX Nancy Krull,said on November 29th that , :“Strong demand for wheat continues to drive increased volume in the Hard Red Spring Wheat contract,”

MGEX set a new daily trading volume on November 28th of 5,260 contracts traded bringing the annual total in excess of the Total volume for 2006 of 1,655,034.

The soaring price of wheats is reflected in the interest in trading, 2 memberships at MGEX traded last week at the new record high price of US$275,000 continuing the membership price rally that began last January when memberships were trading at US$73,000.

On 21st December near month March 2008 contracts closed at US$ 10.78 - they broke the US$10 barrier on December 5th which was then an all time high... they have settled back a little from a new all time high of US$10.98. (they were trading at around US$8/9 in early September.)

Canadian and US droughts in 2007.

In early December Statistics Canada trimmed their crop forecast from down from 526 Mn bushels to 503 Mn bushels....way down on the 684 MN bushels in 2006 but uin 2007 lower pantings and unfavourable heat reduced the crop dramatically. (MGEX futures jumped 30 cents in the day)

The rise in futures in September was driven by the USDA cutting the 2007/8 crop forecast from 500mn to 479 MN bushels.,,in the drought year of 2006 the US crop was down to 460 Mn bushels.

The Australian government on 5th December released a new estimate of the size of their drought-stricken wheat crop of 12.7 MMT (466.6 million bushels). That is up slightly from the October estimate of 12.1 MMT, but is still only about half of normal production.

World stocks low, production forecasts low, demand and costs up = higher wheat prices

With a reduced wheat crop and worldwide rise in living standards,...the rush to biofuels, and disappointing crop yields, foreign buyers are helping the price rise.The US Department of Agriculture forecasts global stocks of wheat will fall to a 47-year low of 9.3 weeks and corn (maize) will fall to a 33-year low of just seven and a half weeks.

India recently bought 12.6 million bushels of wheat for February delivery at US$10.89 per bushel.

Of course producer cost are rising .. diesel for farm eqipment, for driers and natural gas to produce chemical fertilisers - Urea has risen 86% in dollar terms over the past year (virtually all imported in the US) , and ammonium phosphate 150%.

Estimates for this year’s wheat production suggest the world is consuming more than it is producing. The International Grains Council estimates world production at 603m, ( a rise of 4% on last year) and consumption at 611m tonnes.

Soya bean prices are at a 34-year high - the price has soared by more than 30 % since mid-summer to over 11 dollars per bushel for many of the 2008 futures contract months. Corn (maize) prices are at an 11-year high...17 % up from mid-summer- although demand has suffered for ethanol production and livestock feeding have slowed because of reduced profitability in both industries.

Durum wheats, mainly for pasta production are are still in that $15-$16 range, and have been as high as US18 per bushel according to the North Dakota Wheat Commission. That's still about three times higher compared to the last several years and prices earlier this year.

This share price chart for US Panera Bread (company mission?A loaf of bread in every arm® ) shows the impact of higher costs ona very successful nationwide (US) retail chain as flour prices eat into costs.

Panera Bread Company owns and franchises 1,115 bakery-cafes under the Panera Bread® and Saint Louis Bread Co.® names as of September 25, 2007. With its identity rooted in handcrafted, fresh-baked, artisan bread, Panera Bread is committed to providing great tasting, quality food that people can trust. Highlighted by antibiotic free chicken, whole grain bread, select organic and all-natural ingredients and a menu free of man-made trans fat, Panera's bakery-cafe selection offers flavorful, wholesome offerings.

Panera Bread Q3 2007 Earnings Call Transcript
October 24, 2007

"We are not currently committed forward for 2008 in our flour purchases. So, this commodity remains a potential source of earnings volatility for next year. Here is how the price of wheat flows into our cost. We expect to use approximately 140 million pounds of flour in 2008. That is equivalent to about 3.25 million bushels. So, a move of $1 in the price of a bushel of wheat translates into about $3.25 million change in our cost. Wheat futures for 2008 now average about $7.70. And our 2008 target assumes wheat at this price.

The $7.70 price is about $2.50 above the average we will pay in 2007. So this creates a potential of more $8 million hit to earnings or $16 per share. We think we’ll be able to offset much but not all of this potential impact through further price increases beyond those planned for November.

So, our target for 2008 assumes a net $2.5 million hit for increased wheat prices. If wheat prices are below our targeted cost of $7.70, we’ll take less price. If they are higher we will strive for a greater increase in order to keep the earnings impact to $.05 per share.

Now, when we cannot control the price of wheat, we can respond to it intelligently. So, our purchasing team continues to carefully monitor the market. We take some encouragement from the fact that wheat futures for late 2008 are now lower in price than for early in the year reflecting the market's belief that the prices will ease."

See in previous years - "changes in the mix of products sold in the Au Bon Pain stores along withhigher flour prices reduced the manufacturing contribution per dollar of retail sales and raised percentage food cost. " (SEC Filing ) "These efficiencies were partially offset by increased ingredient costs (higher flour"(SEC Filing)

Panera also holds a 51% interest in Paradise Bakery & CafĂ©, Inc.®, owner and franchisor of 53 bakery-cafes as of September 25, 2007.

It may be of interest that Neal Yanofsky, President of the Company, has left the company effective January 4, 2008. Yanofsky is leaving the Company to pursue other career opportunities.

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