Lean Cuisine

As gasoline prices have fallen, so will food prices. Oil is trading at less than half its value a few months ago, and many agricultural commodities have fallen by roughly the same amount. In the case of food, though, it takes a little longer for declines in commodities to filter down to consumers. The food companies have to get their cut first.

But there are already indications that consumers and grocery chains are resisting high prices, and over the next quarter or two, retail prices are likely to come down, possibly quite sharply.

But don't expect prices for food—or for gasoline—to stay down for long.

The Wall Street Journal today implicitly characterizes Britain as offering a glimpse of what is likely to happen soon in the United States and elsewhere. In the United Kingdom, retailers have been "particularly resistant to accepting price increases" as commodities continue to fall, notes the Journal's Julie Jargon.

H.J. Heinz will report earnings on Friday, and Jargon thinks this will offer hints on just how much supermarkets have been pushing back on price increases.

Heinz derives nearly one-fifth of its revenue in the United Kingdom, where, Credit Suisse analyst Robert Moskow notes, food producers have already begun offering promotional allowances to make up, in part, for higher prices. Further, he notes, price increases on ketchup, Heinz's signature product, have sent consumers scurrying to private-label brands. And since Nestle cut prices on Lean Cuisine frozen dinners, demand for Heinz's Weight Watchers line has softened.

Many food companies purchased commodities when they were at their price peak over the summer. Heinz, though, bought when prices were lower earlier in the year. So it will likely be quicker than other food producers to cut prices. If so, we may soon get a hint of what is to come across the industry.

"I feel the general window for pricing has closed," Edgar Roesch, an analyst with Soleil Securities, told the Journal. Maybe so, but it will probably soon open again, perhaps wider than ever. Falling commodity prices are a function of the global slowdown. But long-term supply and (now latent) demand conditions haven't changed. If food prices are still falling a year from now, we'll probably have larger concerns than which ketchup to buy.