Pork, chicken prices may rise in next wave of food inflation

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, up from 2.4 percent in 2006. While beef prices were already high, chicken and pork prices didn't reflect record costs for feed and fuel. That's poised 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.

Higher food inflation would further challenge shoppers who are already limiting themselves to sale items and store brands as they contend with the worst food inflation since 1990.

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

But Karen Leedahl, a pastor who lives in Latrobe, Penn., 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 Chief Executive Clint Rivers. The nation's largest chicken producer posted a wider quarterly loss Monday as it paid more for feed and took a restructuring charge.

Pork farm losses 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."

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 he expects to spend $85 per hundredweight feeding his hogs this year; at current levels, they will fetch prices in the mid $40s.

"Take that figure, times 10,000 hogs, and see if you can eat breakfast decent in the morning," said Tentinger, 59.

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 past two years from $2.50 a bushel to $6.

Jim Hertel, of Willard Bishop food-retail consultants, is counseling his grocery-store clients on price-increase strategies. One piece of advice — don't make your store brands too cheap. Shoppers who buy them are looking for a 20 percent discount, so stores that price them 30 percent cheaper are losing money.

"We haven't seen hard-core food inflation for 30 years," he said. That's not only a challenge for shoppers, it's a challenge for retailers, he said. "A lot of people who knew what to do, who learned their lessons in the late 70s or early 80s, they're retired at this point, if they're lucky."