Monday, December 14, 2009

Dairy, Meat Prices Will Double Food Inflation, Wells Fargo Says

Here it comes - milk, beef, pork and chicken prices will double the pace of U.S. food inflation next year said Michael Swanson, a senior economist at Wells Fargo.
It's possible that food prices may jump as much as 6 percent in 2010, Swanson said.
Why you ask?
It seems the producers of cattle, pigs, dairy cows and poultry cut production after feed costs went up last year, reducing supplies as demand for meat is rising at home and abroad. (it's true PETA)
Corn, the main source of animal feed, will see a record demand for grain to make ethanol.
“Protein inflation is going to be much higher than people are anticipating,” Swanson said.

Here's a thumbnail sketch of the information that we picked up on Bloomberg:

Wholesale-pork prices in the U.S. are up 27 percent this year, heading for the first annual gain since 2004. Farmers, hurt by two straight years of losses, are cutting the domestic breeding herd to the smallest level since the USDA started collecting the data in 1964. Chicken output is sliding in the U.S., where the number of eggs placed into incubators each week is headed to the lowest quarterly average since 2002.
Smithfield Foods Inc., the world’s largest hog producer, has had four straight quarterly losses. Last week, the company reported a loss of $26.4 million loss in the three months ended Nov. 1.
The Smithfield, Virginia-based processor has reduced the size of its breeding herd by 13 percent, or 130,000 sows, which will cut the number of market hogs it raises by more than 2.2 million annually, Larry Pope, the chief executive officer, said Dec. 10 during a conference calls with analysts.

The U.S. beef-breeding herd on July 1 totaled 32.2 million head, down 1.4 percent from 32.65 million a year earlier, and was the smallest since the government started collecting data in 1971, the USDA said July 24. The number of dairy cows fell 2.4 percent to 9.098 million head at the end of October from a year earlier, reaching the smallest monthly total since December 2005, the USDA said last month.

Dairy prices will rise as much as 20 percent, leading the increase in food costs.
Chicken and vegetable-oil prices will rise 7 percent to 9 percent in 2010.
The accelerated pace of food inflation has been set in motion by last year’s grain rally and this year’s drop in livestock herds and poultry flocks.
Rising energy costs also will contribute to the gains.
Food manufacturers and restaurants will be hurt the hardest, they will have to find a way to manage the price increases by either cutting costs or raising their prices.