November 25, 2010

US pork costs rise despite tame inflation outlook

US consumers are paying more for pork this year than previously forecast, reflecting a surge in prices in the past month, according to the USDA.

Pork costs will rise by 5-6% this year, compared with a 4.5-5.5 % gain projected in October, the USDA said in a report. Through Tuesday (Nov 23), hog futures traded in Chicago jumped 17% this month on greater export demand.

Overall, food prices will increase by 0.5-1.5% this year and rise by 2-3 % in 2011, the USDA said, leaving both estimates unchanged from last month.

"Although inflation has been relatively weak for most of 2009 and 2010, higher food commodity and energy prices are now exerting pressure on wholesale and retail food prices," USDA analysts said. "Food inflation is predicted to accelerate during the final months of 2010 and the first half of 2011."

Wheat, corn, and soy prices were all up at least 16% this year before Wednesday (Nov 24) as drought in Russia and smaller-than-forecasted crops in the US had tightened supplies. Cattle and hog futures had gained at least 17% on increasing demand from Asia.

In 2011, prices for fats and oils will increase as much as 4%, compared with a ceiling of 3% projected in October, the USDA said.

For 2010, the estimated increase in egg costs was lowered to 1%, from the October forecast of 1.5-2.5 %. Meat prices are expected to rise as much as 3.5%, a half-percentage point increase from last month, led by higher costs for pork.

The Bureau of Labor Statistics had reported earlier that overall food prices rose 0.1% in October. Food accounts for about 14% of the overall inflation rate, which the bureau said gained 0.2% during the past month.

Food prices fell 0.5% last year, the first annual drop since 1961, according to the bureau. The USDA uses the agency's data in making its forecasts.