January 19, 2012

US higher meat prices drive food prices up

USDA said that in 2012, higher meat prices, especially beef, are anticipated to drive food prices up slightly to more than a 3% increase.

Because of the drought in Texas and Kansas, cattle herds are at 50-year lows and could continue to decline in numbers if dry weather hangs on into summer as most meteorologists predict. Pork prices also should rise, but not as much.

Analysts expect a rise in hog numbers because it's easier and faster to increase the herds when sows produce 10 piglets twice per year. Asia's meat demand is contributing to bring both cattle and hog prices higher as exports increase, 15% for pork and 30% for beef, according to USDA.

Meanwhile, retail food prices at the supermarket declined slightly during the fourth quarter of 2011, according to the latest American Farm Bureau Federation Marketbasket Survey. The informal survey shows the total cost of 16 food items that can be used to prepare one or more meals was US$49.23, down US$3.89, or about 7%, compared with the third quarter of 2011. Of the 16 items surveyed, 14 decreased and two increased in average price compared with the prior quarter. The overall basket of foods was up about 5% compared with one year ago.

"Since about the last quarter of 2010, we have seen consistently higher prices quarter-to-quarter on a broad range of Marketbasket items," said AFBF Senior Economist John Anderson. "With this survey, that trend appears to have reversed. While the Marketbasket price was still higher over year, the pullback from recent highs on most of the items in the basket suggests that food price inflation is slowing down substantially."

Whole milk and bread were the two survey items that increased in the fourth quarter, compared with the third quarter. Whole milk was up US$0.10 to US$3.76 per gallon, and bread jumped US$0.04 to US$1.92 for a 20 ounce loaf. USDA predicts milk will be more expensive in 2012. The average cost of a gallon of milk was US$3.56 in November, down from the highs in August and September, but still well above the average at the end of 2010.

Several items showed a decrease in retail price from quarter-to-quarter, according to the AFB survey. In the meat department, sliced deli ham decreased US$0.74 to US$4.69 per pound; bacon decreased US$0.36 to US$4.05; sirloin tip roast dropped US$0.13 to US$4.15 per pound; ground chuck dropped US$0.10 to US$3.17 per pound; and boneless chicken breasts decreased US$0.09 to US$3.24 per pound. During an interview in mid-November with Robert Young II, chief economist with the Washington, D.C.-based American Farm Bureau Federation, he talked about the rise in 16 pound turkey prices to US$21.57 compared with US$17.66 in the third quarter of 2010.

What struck me was that the turkey inventory was increased in 2010 and 2011, but there also was a stronger demand. "The era of grocers holding the line on retail food cost increases is basically over," Young told me. "Retailers are being more aggressive about passing on higher costs for shipping, processing and storing food to consumers."

AFBF, the nation's largest general farm organisation, has been conducting the informal quarterly Marketbasket Survey of retail food price trends since 1989. There were 53 shoppers in 18 states who participated in the latest survey, conducted at the end of October and early November.

"In the mid-1970s, farmers received about one-third of consumer retail food expenditures for food eaten at home and away from home, on average. Since then, that figure has decreased steadily and is now about 16%, according to the Agriculture Department's revised Food Dollar Series," Anderson said.