Food Inflation: Production Prices Rising

Reading Time: 2 minutes

There are signs that the food inflation that’s gripped the world over the past year, raising prices of everything from shredded cheese to peanut butter, is about to get worse.

After a year of disruption throughout the food supply system, farmers, especially those who are raising cattle, hogs and poultry, are getting squeezed by the highest corn and soybean prices in seven years.

It has lifted the costs of feeding their herds by 30 percent or more. To stay profitable, producers are increasing prices, which will ripple through supply chains and show up as higher prices for beef, pork and chicken.

Feed prices “go up and down, and you tend to take the rough with the smooth,” said Mark Gorton, managing director at a British chicken and turkey producer. “But when it rallies as much as it has, it starts to impact massively on the business.”

The last time grains were this expensive was after the U.S. drought of 2012, and meat prices saw a dramatic run-up. Now, meat is again poised to become a driver of global food inflation, and part of the intensifying debate over the path of overall inflation and exactly what central banks and policymakers should do to aid economies still working to recover from the pandemic.

As for what’s driving the feed prices, that’s due to bad crop weather shrinking world harvests. Demand is also increasing. China, the biggest buyer of commodities, is scooping up record amounts of the supplies to feed its expanding hog herds.

In Brazil, the biggest poultry shipper, the cost of raising chickens jumped 39 percent last year due to feed, according to Embrapa, a state-owned agricultural research agency.

In Europe, profitability of livestock operations has plunged due to the combination of high feed expenses and stifled demand from COVID-19 lockdowns. Some smaller hog farmers may be forced to exit the market, according to Rabobank senior analyst Chenjun Pan.

The United Nations’ Food & Agriculture Organization said global meat prices in January climbed for the fourth straight month.

Source: Bloomberg