Supply Chain News Bites - Only from SCDigest

-June 25, 2007


Sourcing and Procurement News: Commodity Buyers under Pressure on Many Fronts, as Economy now Confronts “Agflation”


Goldman Saks Index up 25% in 5 Months; from Grain to Corn Syrup, Agricultural Product Prices are Soaring


SCDigest Editorial Staff


Corporate buyers have battled rising prices for raw material commodities such as metals and energy over the past few years, but now for many, a new enemy is at hand: “Agflation,” a term coined it appears by analysts from Merrill Lynch earlier this year.

Wheat and other grain prices are at 10-year highs. Prices for corn and derivative products like corn syrup have risen dramatically, “fueled” in part by strong demand for corn for use in ethanol production.

Wall Street firm Goldman Sachs’ commodity price index is up about 25% in the past 5 months. While the index includes energy and metals components, much of the recent rise has been driven by the agricultural components of the index.

In addition to corn, prices are also on the rise in soybeans; cotton is at a three-year high.

In their April research report “Global Agriculture & Agflation,” Merrill Lynch analysts Richard Bernstein and Jose Rasco write: “Food prices are rising, putting upward pressure on producer and consumer inflation. Agflation has begun. Given the expanding constraints on food supply, the changing demand for food, and the entrance of the energy business as mass consumers of food products, it is not surprising to see food prices rapidly putting upward pressure on overall inflation.”

Agriculture products are notoriously cyclical, with huge amounts of supply often coming in when prices rise to get supply-demand equation back in balance. But as with metals and energy, hugely rising demand from India, China and other fast growth nations, the ethanol factor, and other historical anomalies may mean Agflation will plague buyers and consumers for awhile this time.

Send an Email