October is 70 days away, but this week Wall Street and the world got a preview of what could likely be this year’s October Surprise: soaring food prices that sap consumer demand for so-called “luxuries” like eating out and other discretionary purchases — and could tip the economy toward recession.
While front-page headlines were warning that the current drought that covers more than 50 percent of the United States is the worst in more than 50 years, it was the stock market that heralded the potential threat to investors’ bottom lines and to consumers’ wallets as prices for many agricultural commodities soared to record highs last week.
On Friday, the stock of restaurant chain Chipotle, the McDonald’s spinoff that had risen nearly twentyfold since its initial public offering debut in 2006, cratered 23 percent after the Mexican grill warned that sales hit a big speed bump in May.
This as Chipotle braces for steep price increases for beef, chicken and cheese later this year. Chipotle Chief Finance Officer John Hartung says he hopes to hold the line on price increases this fall, but investors aren’t buying it.
The shares of other food chains were clobbered as well, with Whole Foods, Starbucks and McDonald’s all coming under pressure from sellers.
The prospect of big price increases at the checkout scanner this autumn is starting to draw attention at the White House as well. This past week, President Obama took time from the campaign trail to meet with his Agriculture chief, Tom Vilsack, who warned that the situation is only going to get worse.
Indeed, corn and soybean prices have now surpassed records set during the 2007-2008 food crisis — a time when the global economy was in far better shape than it is today.
What’s more, after an early summer dip, gas prices are now rising in tandem with food costs, delivering a double-whammy to households.
Of course, Obama could tamp down soaring prices for corn by easing EPA regulations that require the production of billions of gallons of ethanol a year — the price of corn be damned. That would bring down food prices both here and abroad. Obama has shown a propensity for this type of executive edict. But order cuts in biofuel production? Don’t bet the farm on it. I’m putting my money on that October surprise.