Food inflation impact (KR)
The USDA recently raised its forecast for annual grocery inflation for the fourth month in a row to 7.5%, the highest since 8.1% during President Carter’s last year. Consumers have become increasingly more price sensitive in recent months as seen in the survey results below. 17 states are ending or have already ended emergency food stamp allotments that increased the maximum benefit for households during the pandemic even if they would not have qualified previously. That will leave 28 states and the District of Columbia offering extended benefits in June, down from 40 and the District of Columbia in April. The CPI report for May will be released on Friday. We are expecting to see continued acceleration in food at home prices.
Infant formula outages worsen (PRGO)
The baby formula shortage has not eased despite the recent actions to allow imports into the country. The nationwide average of out-of-stocks reached 40% at the end of April according to Datasembly. The Biden administration did not take any actions until May 18. For the week ended May 28 out-of-stocks hit 73.6%. In some states including Arizona, California, Georgia, and Mississippi the out-of-stock rate is close to 95%. In comparison, the out-of-stock rate varied between 2-8% for the first half of 2021. Abbott said its plant in Michigan that was shut down in February which precipitated the product shortages resumed production over the weekend. Abbott is starting production with specialty products like hypoallergenic infant formula. Authorities expect the shortage to ease by the end of July. Perrigo produces store brand infant formula comparable to Ensure, PediaSure, Pedialyte, and Similac. The category represents ~15% of sales. Since Perrigo manufactures the store labels, it is the beneficiary of trade down or any cost saving measures by consumers.
Fewer almonds (STKL)
California’s almond harvest is expected to be 4% lower this year than in 2021 according to the USDA. Despite the record acreage the yield is forecasted to decline 8% from last year due to frost damage and drought. 80% of the world’s almonds are grown in California and nearly all of the U.S. commercial supply. Almond milk is the #1 plant-based milk, but oat milk will overtake it in the coming years. We are hosting a SunOpta Black Book on Thursday at 12:30 PM ET.
