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By Julia Horowitz • Tuesday, December 28

Good morning. In today's newsletter: Why food prices could stay elevated in 2022. Plus, the "Santa Claus rally" is in full swing, and Goldman Sachs announces a booster mandate.

 

US stock futures are up. Markets in Europe gained in early trading, following stocks in Asia.

 

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MARKET FLASH

The uncomfortable truth about food prices in 2022

 

Buying food has gotten increasingly expensive. Unfortunately, going to the supermarket isn't expected to get much cheaper in 2022.

 

What's happening: Pent-up demand, high shipping and fertilizer costs and bad weather could continue to prop up the price of products like corn, cocoa and sugar. That could keep global food prices elevated, even if inflation in other parts of the economy comes down.

 

"We expect prices to remain at these lofty levels," Michael Magdovitz, an agricultural commodities analyst at Rabobank, told me.

 

Breaking it down: The FAO Food Price Index from the United Nations climbed to a 10-year high this year. Disruptions from the pandemic — including labor shortages and a lack of containers for goods — boosted costs for producers just as demand jumped, especially in China. Extreme weather, including droughts and floods, made the situation worse.

 

Agricultural commodity prices rose about 28% in the last year, and they stand about 40% above pre-pandemic levels, Rabobank said in its year-end report.

 

According to data from Refinitiv, corn futures are about 28% higher than at the start of the year. Wheat has jumped 24%, and coffee prices have skyrocketed more than 80%.

 

Shipping costs have recently come down a tad. But that may not be enough to meaningfully change the picture.

 

One problem, Magdovitz said, is that before the pandemic, consumers were buying many agricultural products on an as-needed basis. Then Covid-19 hit, and buyers regretted not building up their stocks — especially as demand soared. If prices drop now, many will rush to rebuild inventories.

 

"If there is a big break in the market — which we don't see, necessarily, across a lot of these commodities — it will be taken with both hands by consumers," Magdovitz said. "That will limit the ability of prices to fall."

 

When it comes to agriculture, producers can't just rapidly ramp up supply. It's hard to quickly increase arable land or improve yields dramatically.

 

Another issue is ongoing expectations for erratic weather. La Niña conditions have emerged in the Pacific. That typically brings drier and warmer-than-average weather in Argentina, the south of Brazil and the southern United States. Meanwhile, flash flooding, surprise frosts and other droughts that featured in 2021 could extend into or repeat next year.

 

"That La Niña event is having a big, big impact right now," Magdovitz said, pointing to the recent leap in soybean prices.

 

Big picture: The price of items like soybeans and corn is just one reason for sticker shock at the grocery store. Food companies are also dealing with more expensive packaging and higher distribution costs. Wages for workers are rising, too. 

 

Some of these factors could ease in the next 12 months. But, for now, manufacturers don't predict much change. Kraft Heinz and Mondelez have already said that they plan to hike prices for their retail customers in early 2022.

VOICES

Employers are optimistic about the future

"Although there have been supply chain issues, most of that has postponed demand, not canceled demand, so they feel good about the outlook for their business."

 

MANPOWERGROUP CEO JONAS PRISING

 

Watch his full interview with CNN Business.

NEWS ALERT

The 'Santa Claus rally' is in full swing

Trading on Wall Street is notoriously light this week. But investors who are still changing up their portfolios before the end of the year see reason to be bullish, despite the rapid spread of the Omicron variant.

 

The latest: The S&P 500 finished at a record high on Monday following positive news about a strong holiday shopping season. Mastercard found that US retail sales rose 8.5% year-over-year as Americans returned to stores and displayed growing comfort buying presents from their couches.

 

Oil prices have also been climbing. West Texas Intermediate futures, the US benchmark, are up again Tuesday — the fifth-straight trading session of gains.

 

The CNN Business Fear & Greed Index is back in "greed" territory. One week ago, it showed a reading of "extreme fear."

 

Did you know? Wall Street may have aged out of its belief in Santa (apologies to our readers under age 10). But it does have faith in the so-called "Santa Claus rally."

 

December is typically one of the best months for stocks. That's in part because of strength in the final five days of the year. The good times usually extend to the first two trading days of the following year, too, according to LPL Financial's Ryan Detrick.

 

"Why are these seven days so strong? Whether optimism over a coming new year, holiday spending, traders on vacation, institutions squaring up their books — or the holiday spirit — the bottom line is that bulls tend to believe in Santa," Detrick said in a recent note to clients.

 

The seven-day "Santa Claus rally" has materialized all but six times since the mid-1990s. And on those occasions, the following year was usually tough. So far, so good in 2021, though.

UP NEXT

The FHFA Housing Price Index for October arrives at 9 a.m. ET, along with the S&P Case-Shiller Home Price Index.

 

Coming tomorrow: The latest data on US crude inventories. 

WHAT WE'RE READING AND WATCHING

▸ The 3 reasons travel was awful over the holidays (CNN Business)
▸ Walmart sparks public outcry in China over Xinjiang products (WSJ)
▸ Why ranchers aren't cashing in on record beef prices (NYT)
▸ Around the world, 20% of truck driving jobs are unfilled (Bloomberg)
▸ It's been a revolutionary year for pickup trucks (CNN Business)
▸ The Turkish lira is 37% weaker against the dollar this year (Reuters)

FINAL WORD

Goldman Sachs announces a booster mandate

Last week, my CNN Business colleague Chris Isidore wrote that the booster mandates were coming. He was right.

 

Goldman Sachs told employees Monday that all individuals coming into the bank's US offices will be required to show proof of a Covid vaccination booster shot.

 

The new policy takes effect Feb. 1 and applies to both employees and visitors. The move comes as a spike in Covid-19 cases complicates the return of office workers.

 

Goldman Sachs also plans to double mandatory testing to twice a week for those entering US offices beginning Jan. 10.

 

Remember: Andy Slavitt, former Covid-19 adviser to President Joe Biden, told CNN earlier this month that there's "no question" CEOs should require employees to get boosters in light of how contagious the Omicron variant is.

 

"If everybody is boosted, that's your best shot at having everyone back," Slavitt said.

 

On the radar: Dr. Anthony Fauci, the top infectious disease expert in the United States, said Monday that the US government should consider requiring people to be vaccinated to fly domestically.

 

That conversation, along with the move by Goldman Sachs, sends a clear message: Rules around vaccination aren't going anywhere.