Chicken, pork leading latest food-inflation rise

Americans may be getting another helping of food inflation, and it seems likely to come from higher prices for chicken and pork.

Overall food inflation could double this year, lifted by the rising costs of fuel, corn and soybeans, some analysts predict.

Food inflation hit 4 percent last year compared with 2.4 percent in 2006. While beef prices were already high, chicken and pork prices last year did not reflect record costs for feed and fuel. That is poised to change as chicken and pig producers raise their prices.

That means shoppers are likely to look for ways to save money.

Mary Lee Rydzewski, a retired Amtrak engine dispatcher who lives in Cheshire, Conn., said she already had switched to store brands and sale items because of higher food prices. If they increase more, she plans to cut back again.

Karen Leedahl, a pastor who lives in Latrobe, Pa., said she always bought store brands and shopped for sale goods. Two weeks ago, she started walking more than a mile round-trip to the grocery store instead of driving.

If prices increase more, "I'm kind of in trouble," she said. "I was already trying to save."

U.S. shoppers spent 5.8 percent of their income on food in 2006, according to the U.S. Department of Agriculture - a lower proportion than any other nation. In the United Kingdom, consumers spent 8.7 percent of their income on food, and in most of the world it's at least 10 percent.

But the U.S. portion seems certain to rise, as chicken and pig producers say prices have to go up as feed costs increase.

"American consumers are only just beginning to feel the impact of sharply higher food prices," said Pilgrim's Pride Corp. chief executive officer Clint Rivers. The nation's largest chicken producer, which has a processing plant in Franconia, Montgomery County, posted a wider quarterly loss yesterday as it paid more for feed and took a restructuring charge.

Tyson Foods Inc., a giant among the world's producers of meat, forecasts that its expenses will rise $1 billion this year, including $600 million for corn and soybean meal and $100 million for 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 Inc., 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.

Pork-farm losses, though, may total $3.8 billion for 2008, according to Chris Hurt, an agricultural economist at Purdue University. He calls the industry "a financial disaster in progress."

It will be easier for publicly traded meat producers to weather a money-losing quarter than for farmer Bill Tentinger in LeMars, Iowa. Tentinger said that he expected to spend $85 per hundredweight feeding his hogs this year, but that at current levels, they will fetch prices in the mid-$40s.

The biggest driver to prices is grain costs, which have been affected by the rise in ethanol production and strong export demand because of 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.