The Calm Before The Storm?

Based on the low-inflation through the first eight months in wholesale and retail food prices as reflected in the Bureau of Labor Statistics’s Producer Price Index and Consumer Price Index, The Food Institute’s Price Tracker sees only very moderate food inflation through November this year –most likely under 2% on a monthly basis versus a year earlier.

Based on the low-inflation through the first eight months in wholesale and retail food prices as reflected in the Bureau of Labor Statistics’s Producer Price Index and Consumer Price Index, The Food Institute’s Price Tracker sees only very moderate food inflation through November this year –most likely under 2% on a monthly basis versus a year earlier. That is likely to change quickly by early 2013, however, as USDA is projecting overall retail food inflation in 2013 will top 2012 levels, reaching as much as 4% -- or higher depending on what the impact of the U.S. drought ultimately turns out to be when crops are harvested and counted.

POULTRY
As expected due to the short production cycle of broilers, poultry prices are already reflecting the higher feed costs producers have encountered this year. Prices will likely finish the year with an annualized inflation rate in excess of 5% -- the highest gain among the meat and poultry sector this year. USDA’s broiler meat production estimate for third-quarter 2012 was reduced by 50 million pounds to 9.3 billion pounds, down 2.5% percent from the previous year, and for fourth-quarter 2012 was lowered to 9.0 billion pounds, down 150 million pounds from the previous estimate.

And for turkeys, in August, prices for whole frozen hen turkeys averaged $1.09 per pound, up 3% from the previous year. Prices for whole hen turkeys on a year-over-year basis have been higher for the last 33 months. Prices for whole birds are expected to remain above year-earlier levels through the third and fourth quarters of 2012.

BEEF & VEAL
This category historically has made up about 6%-8% of consumer expenditures for food at retail dollar wise and with prices seen increasing next year, volume is almost certain to decline as consumers opt for lower priced alternatives.  For the time being, however, beef and veal prices increases have been tempered with retail prices actually falling 0.4% in August versus July. 
In the near term, prices are not seen increasing as a result of lower wholesale prices as shown in the accompanying chart, which have fallen for tow consecutive months and are expected to be passed through to consumers in coming months.

PORK
USDA put it best in a recent report, noting: Despite drought-induced record-high corn and soybean meal prices, sow slaughter data suggests that hog producers are not “sprinting towards the exits.” Monthly hog slaughter depicted below indicates that sow slaughter for June—the month where drought conditions became apparent—was more than 9% below slaughter in June 2011, 8.7% below the 3-year average, and 11.3% below the 5-year average. For July, while sow slaughter was 5.7 percent above the July 2011 level, it was 3.2% below the 3-year average July sow slaughter and 8.4% below the 5-year July average.”

Fourth-quarter 2012 pork production is expected to be almost 6.3 billion pounds, 1.6% greater than in the same period a year ago. Next year however, record-high feed costs are expected to gain traction.

MILK
Milk production for the current year was reduced fractionally in September from the August forecast to 199.9 billion pounds. Dairy cow number forecasts for both 2012 and 2013 remain unchanged from August at 9,215- and 9,110- thousand head, respectively. The dairy cow slaughter rate and the prices of replacement heifers suggest a continued gradual decline in the dairy herd through 2013. The reduced milk production forecast for 2012 is based on lower forecast milk per cow of 21,690 pounds. Lower milk per cow is expected in the third and fourth quarters of this year due to high summer temperatures that likely adversely affected milk yields as well as tight alfalfa supplies.

Price forecasts were raised in the September forecast. Demand remains firm, while production is likely to decline in coming months.

COFFEE
Unlike many other categories, coffee prices have been declining steadily for the past year and will likely continue to trend downward in future month according to the FI Price Tracker. Increased production and supplies continue to hold prices down and while there has been talk in the trade about this market bottoming out, it is not apparent in the most recent data on retail and wholesale pricing.