Pork and chicken prices to rise in the US

08-05-2008 | |

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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