Major Food Distributor Sysco: “Immediate Volatile Prices, Expected Limited Availability, and Mediocre Quality at Best”

Mac Slavo — SHTF

Adding to already rising food prices due to monetary inflation and weather related supply problems around the globe, one of the world’s leading food distribution companies, Sysco Corporation, is advising clients and their customers that the recent freeze across North America has significantly impacted growing operations in Mexico (as well as parts of the U.S.) leading to 80% – 100% crop damage:

ALL OF OUR GROWERS HAVE INVOKED THE ACT OF GOD CLAUSE ON OUR CONTRACTS DUE TO THE FOLLOWING RELEASE. WE WILL BE CONTACTING YOU PERSONALLY TO REVIEW HOW THIS WILL AFFECT OUR CONTRACTED ITEMS WITH YOU GOING FORWARD.

THE DEVASTATING FREEZE IN MEXICO IS WORST FREEZE IN OVER 50 YEARS…

THE EXTREME FREEZING TEMPERATURES HIT A VERY BROAD SECTION OF MAJOR GROWING REGIONS IN MEXICO, FROM HERMOSILLO IN THE NORTH ALL THE WAY SOUTH TO LOS MOCHIS AND EVEN SOUTH OF CULIACAN.

THE EARLY REPORTS ARE STILL COMING IN BUT MOST ARE SHOWING LOSSES OF CROPS IN THE RANGE OF 80 TO 100%.

EVEN SHADE HOUSE PRODUCT WAS HIT BY THE EXTREMELY COLD TEMPS. IT WILL TAKE 7-10 DAYS TO HAVE A CLEARER PICTURE FROM GROWERS AND FIELD SUPERVISORS, BUT THESE GROWING REGIONS HAVEN’T HAD COLD LIKE THIS IN OVER A HALF CENTURY. THIS TIME OF YEAR, MEXICO SUPPLIES A SIGNIFICANT PERCENT OF NORTH AMERICA’S ROW CROP VEGETABLES SUCH AS: GREEN BEANS, EGGPLANT, CUCUMBERS, SQUASH, PEPPERS, ASPARAGUS, AND ROUND AND ROMA TOMATOES.

FLORIDA NORMALLY IS A MAJOR SUPPLIER FOR THESE ITEMS AS WELL BUT THEY HAVE ALREADY BEEN STRUCK WITH SEVERE FREEZE DAMAGE IN DECEMBER AND JANUARY AND UP UNTIL NOW HAVE HAD TO PURCHASE PRODUCT OUT OF MEXICO TO FILL THEIR COMMITMENTS, THAT IS NO LONGER AND OPTION.

WITH THE SERIES OF WEATHER DISASTERS THAT HAS OCCURRED IN BOTH OF THESE MAJOR GROWING AREAS WE WILL EXPERIENCE IMMEDIATE VOLATILE PRICES, EXPECTED LIMITED AVAILABILITY, AND MEDIOCRE QUALITY AT BEST. THIS WILL NOT ONLY HAVE AN IMMEDIATE IMPACT ON SUPPLIES, BUT BECAUSE OF VERY STRONG BLOSSOM DROPS, THIS WILL ALSO IMPACT SUPPLIES 30 – 60 DAYS FROM NOW.

SOME GROWERS ARE MEETING WITH THEIR BOARDS RIGHT NOW TO DETERMINE WHETHER THEY SHOULD IMMEDIATELY RE-PLANT, HOPING FOR A HARVEST BY LATE-MARCH-TOEARLY-APRIL, OR WHETHER THEY SHOULD DISC THE FIELDS UNDER AND WAIT FOR ANOTHER SEASON.
Source: Sysco Release/Memo: Mexico Freeze [PDF]

The February 8, 2011 memo from Sysco Corporation comes on the heels of a report the day prior suggesting that Sysco will be forced to raise prices on foods ranging from dairy to meats as a result of higher raw material costs and margin compression:

Higher raw material costs have pressured companies across sectors, and many of them, including Kellogg Co the world’s largest breakfast cereal company, raised prices to combat rising ingredient costs.

Sysco shares were down more than 6 percent on Monday afternoon on the New York Stock Exchange.

On a call with analysts, the company said a double digit price rise in meat, dairy and seafood — categories that account for one-third of its sales — created substantial margin pressures.

“It is unlikely that these pressures are going to subside near term,” Morning Star analyst Erin Sherin said, “This is in stark contrast to the 3.5 percent deflation Sysco was experiencing in the year-ago quarter.”

Food inflation is a mounting worry globally. A recent study on global food prices by a U.N. agency showed they hit their highest level on record in January, and are set to worsen after a massive snowstorm in the United States and floods in Australia.

Sysco CEO Bill DeLaney said, “Recovery and to some extent, (its) financial results may be somewhat choppy due to the economic challenges that consumers continue to face.”

We previously warned readers (Agflation Goes Retail and Broke and Hungry: This Chart Says It All) to expect this very effect of margin compression to hit consumers in coming weeks and months. Sysco has now essentially confirmed that their prices are going up, which means your prices at local grocery stores are headed north. And you can bet that if their raw material costs are up double digit percentage points, yours retail prices will be as well.

The strategy we outlined in January of 2010, Buy Commodities at Today’s Lower Prices, Consume at Tomorrow’s Higher Prices, may have sounded a little kooky at the time, but considering what has transpired in commodity markets and the food production sector specifically, it was and still remains a viable investment strategy. While day traders and stock brokers on Wall Street exchange ETF’s and commodity options, we recommend to those of our readers who could care less about paper financial markets, to buy real food and store it for the longer term. Prices will likely continue to rise, and holding your own food stores gives you peace of mind knowing there is no counter-party risk, as you have the physical asset in your possession, ready for consumption or trade at a time of your choosing.

For those who care to read up on it, here are some ideas for Wealth Preservation, Investing, and Prepping For Hard Times.