News last update:6 Aug 2012

Pork and chicken prices to rise in the US

Food inflation is expected in the US as prices for chicken and pork will go up over the next couple of months, Associated Press reports. It is expected that overall food inflation could double this year, initially lifted by the rising costs of fuel, corn and soybeans, some analysts predict.

Food inflation hit 4% last year, up from 2.4% in 2006. While beef prices were already high, chicken and pork prices didn't reflect record costs for feed and fuel. That is about to change as chicken and pig producers who have been losing money slaughter more animals to decrease the supply and raise the prices they can charge.

Industry comments
"American consumers are only just beginning to feel the impact of sharply higher food prices," Pilgrim's Pride CEO Clint Rivers told AP. The largest US chicken producer posted a wider quarterly loss Monday as it paid more for feed and took a restructuring charge.

Tyson Foods, the world's biggest meat producer, forecasts that its expenses will rise $1 billion this year, including $600 million for corn and soybean meal and $100 million on grain. The balance will come from higher prices for cooking oil, breading and fuel costs, the company said. Last week Tyson reported a $5 million second-quarter loss and withdrew its earnings outlook, saying feed prices were too volatile.

"I think food inflation has got to go up," said C. Larry Pope, president and chief executive of Smithfield Foods, the world's largest pork producer, in a recent speech. "Everything that uses wheat, everything that uses corn, everything that uses corn syrup has got to go up."
The exception may be beef, as already high beef prices may not see the increases that chicken and pork could, said Jim Hilker, an agricultural economist at Michigan State University. "I'm not sure beef prices will go up a lot, but they won't come back down."

Pork farm losses
Pork farm losses, though, may total $3.8 billion for 2008, one-quarter of total production, according to Chris Hurt, an agricultural economist at Purdue University. He calls the industry "a financial disaster in progress." The biggest driver to prices is grain costs, which have been affected by the rise in ethanol production and strong export demand due to the weak dollar. Corn costs have more than doubled over the last two years from $2.50 a bushel to $6. That has added $6 billion to chicken farmers' annual feed bills, according to the National Chicken Council, a trade group.
As a result, companies are slaughtering animals to tighten supply. The move will temporarily increase supply, lowering prices, but as farms herds and flocks get smaller, it will raise prices.

Chicken producers
Fieldale Farms, a privately held chicken producer, is cutting its production by 5% starting in the middle of the month. Tom Hinsley, senior vice president, said he expects higher chicken prices by midsummer. "They will have to rise, big-time, otherwise, there will be no chicken," Hinsley said.
Pilgrim's Pride said it plans to reduce weekly chicken processing by 5% in the second half of the year, and keep production down until margins improve. Smithfield said in February that it would slaughter 4% to 5% of its breeding sows.

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