Food makers still vulnerable to rising ingredients prices as soybean, wheat and corn prices rise 20 per cent, 16 per cent and 9 per cent respectively last month, reports Lindsey Partos.
Despite a real relief in prices towards the end of 2004, strong demand, weather concerns and stronger US and Asian economic indicators pushed the double-digit rise in February.
And for investment bank Goldman Sachs, more price hikes are likely as "very low" global corn and wheat stocks make for highly exposed prices.
"We continue to believe that current inventory expectations suggest further upside for wheat prices,"says the bank in a report this week.
Food manufacturers and their ingredients suppliers have, in the last 18 months, witnessed a sharpening of margins brought about through exponential price rises for key raw materials.
Wheat, along with corn and soy, are the starting point for a range of food ingredients, from starch to gluten, used widely in food applications.
But in each of the last four years world grain production has fallen short of consumption, forcing a draw-down of global stocks for wheat, rice, corn and soybeans to 30-year lows.
The double-digit price rises last month suggest the food industry is far from reaching a commodity comfort zone.