August 16, 2010

US meat prices set to jump on rising wheat prices

Fresh from the swine flu epidemic that hit pigs across the globe last year, meat prices are facing a new threat, as fear of rising wheat prices will make US livestock more expensive to rear.

Wheat has jumped 45% this year, after Russia suffered crop failure and banned exports. Now knock-on rises are already in evidence in the US meat market, where experts are predicting further shortages and price increases to come.

In Chicago, there is an exchange-traded contract for "frozen pork bellies"-and this is 243% higher than at the beginning of the year, creating record prices.  Meanwhile, "fresh pork bellies" are 53% above their price a year earlier and also at an all-time peak.

US pig slaughters this month will be 7% lower on average at 2 million a week and retail bacon prices have gone up by 6%.

Meanwhile, analysts explained that summer is traditionally a time when US consumers eat a lot of BLT-or bacon, lettuce and tomato-sandwiches, causing stockpiles of pork to fall. There is also the hangover from the swine flu crisis, when farmers cut back their herds to curb their losses.

However, the extremely high grain prices are yet another driver that have added costs to all meat producers-with cattle futures also up by more than 12%. When grain prices spike, it can even cost US and European farmers more to feed their animals than they will get for selling them-which happened during the corn shortage in the winter of 2008.

The UN Food and Agriculture Organisation (FAO) has said that prices across the globe will rise faster than expected this year, at 3%.

Analysts said the futures price for frozen pork bellies reached an all-time high at the CME with US$1.32 per pound, noting that the price increase of grain will primarily lead to a price increase of meat products, because animal feed accounts for more than 60% of total costs regarding meat.

Another increase of meat prices might be imminent, if agriculturals 'infect' one another, similar to the years 2006-08, and the strong price increases of wheat lead to rising prices of soy and corn, both of which are primarily used for the production of animal feed, analysts said.

Also, one extra driver for corn prices is the fact that China has begun importing the grain from the US for the first time in more than a decade. It increased its global imports of the grain from 100,000 tonnes in previous years to more than 1.2 million tonnes so far.