Sunday, May 8, 2011

U.S. Food Costs May Rise 4% Behind Beef, Pork, USDA Says

U.S. Food Costs May Rise 4% Behind Beef, Pork: USDA

Surging pork and beef costs will keep pressure on U.S. food inflation, which the Department of Agriculture says will rise 3 percent to 4 percent this year, the most since 2008.

While the overall estimate for food inflation was left unchanged in today’s report, the USDA said prices for meat poultry and fish will jump 5 percent to 6 percent, led by beef, which may climb 8 percent, and pork, which could gain 7.5 percent. The beef estimate was increased by 2.5 percentage points from March and pork was raised 1 percentage point.

“I suspect when December arrives we will see increases of 4 to 6 percent” for the year in overall prices, said Bill Lapp, the president of Advanced Economic Solutions, an agricultural- research company based in Omaha, Nebraska. “The pressure on food prices is clearly on the upside,” said Lapp, a former chief economist for ConAgra Foods Inc.

Earlier this month, the Bureau of Labor Statistics said food costs rose 0.7 percent in March, capping a 2 percent gain for the first quarter. Cattle futures traded in Chicago were up 6.3 percent for the year through April 21, and hogs had increased 25 percent, on rising export demand. Crude oil surged 33 percent.

Higher Energy Costs

“Cost pressures on wholesale and retail-food prices due to higher energy and food-commodity prices, along with strengthening global food demand, have pushed inflation projections for 2011 upward,” Ephraim Leibtag, the USDA’s food- inflation economist, said in a note that accompanied today’s report.

Riots prompted partly by rising costs have toppled governments in Egypt and Tunisia and contributed to unrest in other parts of northern Africa and the Middle East. China is now battling increasing pest infestation in its wheat-growing regions, while U.S. winter-crop conditions are rated at their worst since 2002.

The USDA also raised its estimate for inflation for fats and oils by a full percentage point, to 6 percent to 7 percent. Costs for fruits and vegetables will increase by 3.5 percent to 4.5 percent, the department said, a half-percentage-point gain.

In the first quarter, meat and fish prices rose 3.2 percent, according to the Bureau of Labor Statistics. A fresh whole chicken cost $1.269 a pound at the end of March, slightly lower than $1.28 at the beginning of the year, while consumers paid about $2.715 for a pound of ground beef, a 14 percent increase.

Vegetable Increases

The price of a pound of field-grown tomatoes last month reached $2.086 a pound, the highest since 2007 and almost a third more expensive than at the beginning of the year, the bureau said. Fresh fruit and vegetables, which have more volatile prices because of their vulnerability to weather disruptions, have already risen 6.5 percent this year, according to the Bureau of Labor Statistics. That trend may level off with better weather, Lapp said.

Wholesale-food costs unexpectedly dropped 0.2 percent in March after rising 3.9 percent in February, the biggest gain since November 1974, according to Bloomberg data. The decline was paced by a 21 percent drop in vegetables.

The wholesale-price drop “was a temporary phenomenon,” said Lapp, who estimates that $30 billion in additional commodity and wholesale costs have not yet been passed on to consumers. Food prices will continue to rise steadily in coming months, with a risk of significant gains should weather disrupt U.S. grain and oilseed production, he said.

“It’s very difficult for companies to pass their expenses onto their customers in a competitive environment,” Lapp said.

The USDA also raised its estimate for inflation for fats and oils by a full percentage point, to 6 percent to 7 percent. Costs for fruits and vegetables will increase by 3.5 percent to 4.5 percent, the department said, a half-percentage-point gain.

No comments: