Chicken, pork to lead rising costs
Posted on Tuesday, May 6, 2008
Americans will experience a rise in food inflation this year, likely from higher prices for chicken and pork.
People in other parts of the world will experience food inflation from higher rice and corn prices.
In the United States, food inflation hit 4 percent last year, up from 2. 4 percent in 2006. While beef prices were already high, chicken and pork prices didn’t reflect record costs for feed and fuel.
But that’s poised to change as chicken and pig producers who have been losing money slaughter more animals to decrease the supply and raise the prices they can charge.
Higher food inflation will further challenge shoppers who are already limiting themselves to sale items and store brands as they contend with the worst food inflation since 1990.
Mary Lee Rydzewski, a retired Amtrak engine dispatcher who lives in Cheshire, Conn., says she has already switched to store brands and sale items because of higher food prices. If they increase more, she plans to cut back again.
But Karen Leedahl, a pastor who lives in Latrobe, Penn., said she always bought store brands and shopped for sale goods. Two weeks ago, she started walking more than a mile round-trip to the grocery store instead of driving.
If prices increase more, “I’m kind of in trouble,” she said. “I was already trying to save.” Surging food prices may be one of the most serious challenges national policy makers have to cope with, central bankers said as they met for talks Monday in Basel, Switzerland.
Food-price inflation is “certainly going to be one of the big issues here,” said Stanley Fischer, Israel’s central bank governor. Record prices for foods including rice, corn and wheat have helped push up inflation worldwide.
U. S. shoppers spent 5. 8 percent of their income on food in 2006, according to the U. S. Department of Agriculture — a lower proportion than any other nation. In the United Kingdom, consumers spent 8. 7 percent of their income on food, and in most of the world it’s at least 10 percent.
But the U. S. portion seems certain to rise, as chicken and pig producers say prices have to go up as feed costs increase.
“American consumers are only just beginning to feel the impact of sharply higher food prices,” said Pilgrim’s Pride Corp. Chief Executive Clint Rivers. The nation’s largest chicken producer posted a wider quarterly loss Monday as it paid more for feed and took a restructuring charge.
Tyson Foods Inc., the world’s biggest meat producer, forecasts that its expenses will rise $ 1 billion this year, including $ 600 million for corn and soybean meal and $ 100 million on grain. The balance will come from higher prices for cooking oil, breading and fuel, the company said. Last week Tyson reported a $ 5 million second-quarter loss and withdrew its earnings outlook, saying feed prices were too volatile.
United Nations f igures showed food was 57 percent more expensive globally in March than a year ago as economic growth in emerging markets such as China, India and Russia pushed up demand for commodities. The price of rice has doubled in the past year and wheat has climbed 65 percent. The price of crude oil has increased 78 percent.
“Food prices are an issue everywhere,” European Central Bank council member Erkki Liikanen said. “They challenge many developing countries in a way we have not seen in a long time.” “I think food inflation has got to go up,” said C. Larry Pope, president and chief executive of Smithfield Foods Inc., the world’s largest pork producer, in a recent speech. “Everything that uses wheat, everything that uses corn, everything that uses corn syrup has got to go up.” The exception may be beef, as already high beef prices may not see the increases that chicken and pork could, said Jim Hilker, an agricultural economist at Michigan State University. “I’m not sure beef prices will go up a lot, but they won’t come back down.” Pork farm losses, though, may total $ 3. 8 billion for 2008, one-quarter of total production, according to Chris Hurt, an agricultural economist at Purdue University. He calls the industry “a financial disaster in progress.” The biggest driver to prices is grain costs, which have been affected by the rise in ethanol production and strong export demand due to the weak dollar. Corn costs have more than doubled over the past two years from $ 2. 50 a bushel to $ 6. That has added $ 6 billion to chicken farmers’ annual feed bills, according to the National Chicken Council, a trade group.
As a result, companies are slaughtering animals to tighten supply. The move will temporarily increase supply, lowering prices, but as farms herds and flocks get smaller, it will raise prices.
The U. S. Department of Agriculture predicts overall food prices could increase another 4 percent to 5 percent in 2008. But consultant Jim Hertel, of Willard Bishop food retail consultants in Barrington, Ill., thinks that high commodity and fuel prices, plus demand from India and China, could push food inflation anywhere from to 7 percent to 10 percent.
Hertel is counseling his grocery store clients on price-increase strategies. One piece of advice: don’t make your store brands too cheap. Shoppers who buy them are looking for a 20 percent discount, so stores that price them 30 percent cheaper are losing money.
“We haven’t seen hard-core food inflation for 30 years,” he said. That’s not only a challenge for shoppers, it’s a challenge for retailers, he said. “A lot of people who knew what to do, who learned their lessons in the late ’ 70 s or early ’ 80 s, they’re retired at this point, if they’re lucky.” Information in this article was contributed by Ellen Simon of The Associated Press and Joshua Gallu and Christian Vits of Bloomberg News.
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