U.S. Food Prices 2013: Just How Bad Is This Bacon Shortage? (CORN, WEAT, SOYB, K)
Money Morning Staff: Americans, at least the ones who eat meat, love bacon. In the late 1990s, the average American consumed just under 17 pounds of bacon per year. By 2007, that number had risen to almost 18 pounds of the pork delicacy on an annual basis.
Unfortunately, consumers the world over might be forced to shell out more for their bacon next year due to escalating food inflation.
Britain’s National Pig Association (NPA) last week called a global bacon and pork shortage “unavoidable,” citing shrinking herds. The trade group said production fell across Europe last year and is declining again in 2012, according to CBS News.
This is not just a Europe-specific problem. Citing the ravages of the Midwest droughts, the U.S. Department of Agriculture said in August that U.S. hog producers are paring production in an effort to control costs.
But before you stock up for the coming “Aporkalypse,” will this shortage really mean no bacon in 2013?
“If you define a shortage as a situation where product cannot be found or where buyers must wait in lines to buy a product, the answer is no,” Cindy Cunningham, a spokeswoman for the Des Moines, Iowa-based National Pork Board, told the site Life’s Little Mysteries via e-mail. “But the quantity of pork available to consumers in the U.S. and the rest of the world will decline in 2013, due to high feed costs and significant financial losses by producers.”
Indeed, prices will rise. Some estimates forecast a 2%-3% increase, while the NPA said prices could double as production falls 10%.
The real trouble with this situation is that food inflation is not limited to bacon or other pork products.
In fact, consumers in 2013 will likely feel an added pinch in almost every aisle of the local grocery store.
U.S. Food Prices 2013: Not Just QE
Some of the biggest catalysts for commodity price spikes are the Fed’s monetary stimulus measures, like the recently announced QE3.
Commodities are denominated in U.S. dollars, quantitative easing erodes the value of greenbacks and commodities prices rise. It is a simple equation, really.
As much as it might pain some to admit this, Fed Chairman Ben Bernanke is not entirely to blame for your higher bacon tab.
The droughts of biblical proportions that slammed the U.S. Midwest this summer are equally to blame. Actually, a case can be made that when it comes to U.S. food prices in 2013, the droughts are more a problem than the Fed’s addiction to easing.
Recent price action in various commodities supports that assertion.
The Teucrium Corn Fund (NYSEARCA:CORN) is a perfect example. CORN is an exchange-traded product that tracks a basket of three corn futures contracts and the fund paints a perfect picture of just how damaging droughts have been when it comes to your future grocery bill. From June 4 through August, CORN surged almost 42%.
The fund has given back some of those gains, but the damage is done. The U.S. corn crop for 2012 will be nowhere near as robust as usual and that hurts more than just pork prices.
Soaring corn prices impact pork and poultry prices because the vegetable is an essential ingredient in livestock feed, but the drama does not end there.
Corn is an essential ingredient in many cereals, so it is no surprise that when CORN soared 42%, Kellogg Company (NYSE:K), the largest U.S. cereal maker, fell almost 1%.
Problem is next year’s food inflation forecast is not limited to corn. We know this because CORN has a couple of cousins that are worth keeping an eye on, too: the Teucrium Soybean Fund (NYSEARCA:SOYB) and the Teucrium Wheat Fund (NYSEARCA:WEAT). SOYB is up 20.5% year-to-date while WEAT has jumped more than 9%.
Corn is not in everything. Nor are soybeans and wheat, but add the three commodities up and it is hard to go shopping and not come home with at least a couple of items that have one or two of those ingredients.
Soybeans and wheat are grown in many of the states that are also major corn producers and will also be slammed if poor growing weather in those regions continues.
Another factor hitting food prices is the world’s astounding population growth.
Money Morning’s Keith Fitz-Gerald and Dr. Kent Moors, along with a team of researchers, have recently uncovered a pattern that illustrates how population growth will cause a substantial drain on the world’s environment, energy and economy.
“The United Nations’ future population estimates form a near-perfect exponential growth curve. And it shows you that we’re well on our way to a tipping point here. More people put a larger drain on our energy needs. They require more food, more money, more everything,” said Fitz-Gerald.
The effects population growth will have on the resources we take for granted are frightening.
Luckily, there are ways to prepare and even make money from the trend. Just check out this team’s fascinating research here.
Hot weather and population growth have lit the fire of food inflation. The Federal Reserve has merely fanned the flames.
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