Dairy, Meat Prices Will Spur Food Inflation, Wells Fargo Says
By Jeff Wilson
Dec. 14 (Bloomberg) -- Rising milk, beef, pork and chicken prices will double the pace of U.S. food inflation next year as livestock supplies shrink and rebounding economies boost demand, said Michael Swanson, a senior economist at Wells Fargo & Co.
Food prices may jump as much as 6 percent in 2010, Swanson said. The U.S. Department of Agriculture on Nov. 25 forecast 3 percent to 4 percent food inflation next year, up from an estimated 1.5 percent to 2.5 percent in 2009.
Producers of cattle, hogs, dairy cows and poultry cut output after a jump in feed costs last year, reducing supplies as demand for meat is rising at home and abroad, Swanson said. Corn, the main source of animal feed, will rally next year because of record demand for grain to make ethanol, he said.
Beef Herd
The U.S. beef-breeding herd on July 1 totaled 32.2 million head, down 1.4 percent from 32.65 million a year earlier, and was the smallest since the government started collecting data in 1971, the USDA said July 24.“Protein inflation is going to be much higher than people are anticipating,” Swanson said Dec. 9 in an interview from Minneapolis. “Corn is a proxy for feed costs, and right now the value of all meat and dairy output is below the price of feed on a long-term relative basis.”
Goldman Sachs Group Inc. said in a Dec. 3 report that cattle futures will increase over the next year by the most since 1978, and hogs will gain the most in six years. Cattle futures on the Chicago Mercantile Exchange will reach $1.10 a pound by December 2010, Goldman said. That would be up 32 percent from 83.275 cents on Dec. 11. Hog futures will reach 80 cents a pound, the bank said, which would mean a 22 percent rally from last week’s close at 65.425 cents.
Sustainable Rally
“As we start a new decade with the global economy emerging from the worst recession of the postwar era, we expect the commodity supply-side constraints of the past decade to once again re-emerge, reinforcing the sustainability of higher long- term commodity prices,” Goldman analysts including Jeffrey Currie wrote in a note to investors. “Economic recovery suggests rising meat demand amid tighter supplies.”
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