Why Everything Costs More at the Grocery Store (and How to Beat Those High Prices)

If things keep going as they have been, on your next trip to the supermarket, you may need to take more than your wallet -- you may need a wheelbarrow to carry all the money you'll be spending.

Over the past few weeks, we've told you all about the drought afflicting California's breadbasket Central Valley, source of 99% of the pistachios and almonds on American grocery store shelves, 96% of our tomatoes, and 86% of our carrots. Why, even with lettuce -- which you'd think anyone could grow anywhere (heck, I just dropped a few seeds in some potting soil last week, and it's already growing) -- we depend on California for 49% of our supply.

Chances are, everything in this store now costs more. Photo source: Wikimedia Commons.

As California goes, so goes the nation
Economists tell us that all of this dry weather in Cali is likely to raise the price of most groceries by 2.5% to 3.5% this year -- and that's on top of inflation. What's worse, the prices of lots of other items that go into our shopping carts are expected to head upward in 2014.

Running down the list of the high-profile items we've spotlighted so far:

Shrimp prices soared to a new all-time record in August, hitting $5.80 a pound -- and then kept on climbing as an outbreak of early mortality syndrome devastated shrimp production in several Asian export markets. At last report, some markets were reporting wholesale prices on "headless" shrimp hitting $7.50 a pound, with restaurant diners paying $9.50 and up.

Another supply crunch is brewing in Brazil -- for coffee beans. Harsh summer weather there is threatening to pre-roast 30% of the country's coffee crop into inedibility, driving prices up by as much as 90% over 2013 levels. Prices have gotten so high that Starbucks (NASDAQ: SBUX  ) recently announced that it's curtailing purchases of coffee beans and will live off its reserve supply until prices stabilize.

Milk prices -- and cheese as well, and even powdered milk -- hit record highs of their own in February, and then proceeded to climb further in March. Here again, Asia is to blame, but this time for importing away surplus milk supplies from America, pushing up the price for what's left here at home. How much will it cost you? Market analysts project whole milk at the grocery store could average $4.10 a gallon this year, up $0.60, or 17%, from 2013's average price.

Acts of Man
So prices of some food commodities are being driven higher by supply constraints, others by excess demand. What chapters are left in the Economics 101 textbook?

Well, how about cartels?

Down in Mexico, now the source of 90% of all limes consumed in the U.S., the Citrus Growers Association has banded together to strangle lime production, limiting supplies and forcing prices to rise. On one fateful day in March, the association told its members to completely refrain from picking any limes while it was busy negotiating higher prices from buyers. Prices in Mexico itself surged 45% between December and January, according to Bloomberg -- and then jumped a further 68% between January and February. Mexican regulators say the association's actions amount to illegal price-fixing, but so far, that opinion hasn't changed the fact that lime prices in the U.S. now cost as much as nine times their price of a year ago -- as much as $0.65 apiece.

What it means for investors
And the list goes on. Beef, pork, and chicken are all at record prices, warns online investing platform Kapitall. Oats and corn are getting dearer as well. (Kapitall's advice: Buy Sanderson Farms (NASDAQ: SAFM  ) to profit as high chicken prices come home to roost, and Archer-Daniels-Midland (NYSE: ADM  ) to lock in profits on high grain prices.)

Finally, the Fool's own Rick Munarriz has a pick of his own. Perversely, for a company that spends 36% of its revenues on the raw food ingredients that go into its burritos. Rick thinks Chipotle Mexican Grill (NYSE: CMG  ) is a fine place to wait out the price storm. His reasoning:

Customers won't like [Chipotle's plan to raise prices in response to food price inflation], but they're not likely to complain. The beauty of running a popular restaurant at a time of food inflation is that patrons will actually see bigger increases if they simply eat at home. After all, if items at the grocery store to assemble your meal theoretically doubled in price you would be treated to a 100 percent increase. Since food costs are a little more than a third of Chipotle's sales, passing on those costs to consumers would be closer to a 35 percent increase.

The logical conclusion, then, is that Chipotle -- and by extension, other big restaurant chains -- won't likely lose customers to rising food prices. In fact, they may even gain a few, as sticker-shocked grocery shoppers discover that these days, eating out isn't all that much more expensive than eating in.

A little-known tax "loophole" can lower your tax bill for the next decade
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Read/Post Comments (0) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2940828, ~/Articles/ArticleHandler.aspx, 9/3/2015 11:29:25 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Rich Smith

As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

Today's Market

updated Moments ago Sponsored by:
DOW 16,521.21 169.83 1.04%
S&P 500 1,969.60 20.74 1.06%
NASD 4,792.69 42.71 0.90%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 11:13 AM
ADM $44.25 Up +0.63 +1.44%
Archer Daniels Mid… CAPS Rating: ****
CMG $726.98 Up +3.11 +0.43%
Chipotle Mexican G… CAPS Rating: ***
SAFM $68.50 Up +1.90 +2.85%
Sanderson Farms CAPS Rating: *****
SBUX $55.48 Up +0.22 +0.40%
Starbucks CAPS Rating: ****