November 4, 2009

US agriculture prices set for explosion; meat firms to lose out

A worldwide shortage of farmers combined with food inventories falling to record lows is setting the stage for an explosion in agriculture prices, according to the National Inflation Association (NIA).

Agricultural commodity prices have for the most part been behind and remain at historically depressed levels, providing lots of room for growth, said the NIA.

US wheat prices are currently down 60 percent from its all time high in 2008 and 80 percent from its inflation adjusted high set in the 1970s.

Corn is currently down 50 percent from its all time high in 2008 and 75 percent from its inflation adjusted high set in the 1970s. Wheat and corn have only bounced 13 percent and 26 percent, respectively, from their 52-week lows this year.

With crude oil back above US$80 per barrel, the NIA said there will soon be a renewed interest in alternative energy in the US, creating increased demand for wheat, corn and sugar.

Industry analysts said any such potential increased prices and competition for feed stock next year could prove damaging for the US meat industry. It was only a year ago that the industry struggled with losses as companies were hit with high raw material costs, but were unable to pass the extra costs to consumers.

With the US in the middle of one of the worst ever recessions, with unemployment continuing to surge and the US dollar losing its purchasing, consumers may not accept higher meat prices, raising the prediction of more losses and further consolidation in the meat industry.