Commodities: The Squeeze Gets Tighter

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Platinum demand in North America is still roughly 21% of the global autocatalyst market, reaching 900,000 ounces last year, according to Johnson Matthey. A portion of that is used for light and heavy-duty diesel vehicles in the U.S.

Demand for platinum jewelry in the U.S. is down 20% to 30% since prices have become too rich for all but high-end consumers. But demand in China made a comeback last year and is strong so far this year, thanks to a growing upwardly mobile population willing to pay up for the metal, he says.

Platinum prices are also up due to the emergence in the past year of two exchange-traded funds that have bought and set aside a total of roughly 360,000 ounces of platinum in banks in Zurich and London, and will probably set aside more in the future, Murray said.

Power shortages in South Africa, where about 80% of the world's platinum is mined, could keep platinum production from rising for the foreseeable future, which will support higher prices, he says.

Food: Rising Indigestion

Heavy industrial firms aren't the only ones feeling the heat from the commodities boom. Just look at packaged-food manufacturers, where the pain from rising grain prices is likely to linger. That's because of the U.S. government's willingness to subsidize corn ethanol production, which has prompted farmers to shift 14 million acres of land from soybean and wheat production to corn crops in the past two years. The reduced supplies of soybeans and wheat have driven those prices up along with corn, says Eitan Bernstein, an energy analyst at Friedman Billings Ramsey (FBR) in Arlington, Va.

With wheat, corn, and coffee prices dramatically higher, the average food company will face 7% to 8% cost inflation for raw materials in 2008, estimates Eric Katzman, an analyst at Deutsche Bank Securities (DB) in New York.

Kraft Foods' (KFT) commodity input costs—which include transportation fuels—jumped $1.3 billion, or about 9%, in 2007 from the prior year, and are expected to rise further this year. The magnitude of the cost hikes—and the fact that they aren't just temporary—"have been unprecedented," Michael Mitchell, a company spokesman, said in an e-mail message to BusinessWeek.com.

Among the ways the Northfield (Ill.)-based company is dealing with the cost pressures are by raising prices and by reducing other costs, such as those for packaging and transportation.

With its Miracle Whip sandwich spread, for example, Kraft jettisoned its traditional glass jar in favor of a recylclable plastic jar with a wider mouth that allows consumers to more easily scrape the last bit of product from inside, says Mitchell. Consumers, he reports, love the new jars, which presumably makes them more willing to pay more for them.

And the reduced package weight translates to fewer trucks needed to ship the product to retail locations and fuel savings of roughly 87,000 gallons per year.

Hershey (HFC) raised its chocolate confection prices by 13% earlier this year to reflect higher dairy, cocoa, sugar, and peanuts costs, says Katzman at Deutsche Bank. General Mills (GIS) has raised prices for its bakeries and food service products, Yoplait yogurts, and Pillsbury refrigerated dough, among other products, since November.

"I don't think anybody involved in the food industry is anticipating any type of sustained rollover in input costs anytime soon," says Katzman. That's not only because no change in U.S. ethanol policy is expected but because of rising demand for higher-quality food by the one billion people in emerging markets who are moving to urban centers, as well as continuing weakness in the U.S. dollar, he says.

Nor do other analysts see any relief in sight across the commodities sector—animal, vegetable, or mineral. And that spells more bad news for businesses and for the consumers who buy their products.

Bogoslaw is a reporter for BusinessWeek's Investing channel.