US pork prices expected to rise this summer

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.

Tyson & Smithfield expectations
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.”

Pork farm losses
Pork farm losses may total $3.8 billion for 2008, one-quarter of total production, said 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.

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. Smithfield said in February that it would slaughter 4% to 5% of its breeding sows.

Smaller hog breeding population
A smaller breeding population and a wave of expected hog farm failures will boost pork prices by 2009, Hurt predicted. He estimates 6% to 8% of breeding sows will need to be slaughtered to support prices.

The government is giving pork producers a hand by taking some pork off the market. Agriculture Secretary Ed Schafer last week announced a government plan to buy up to $50 million of pork for child nutrition and domestic food assistance programmes – at the urging of the National Pork Producers Council (NPPC).

Related websites:
• Smithfield Foods 
• Tyson Foods
• Pilgrim’s Pride
• National Pork Producers Council (NPPC)
• Associated Press