The hearty American appetite for beef, unshaken by the first U.S. case of mad cow disease, may fuel the largest annual increase in food prices in a decade, U.S. economists say.
Prices could climb by more than 3 percent this year, a much larger gain than usual but still modest enough to avoid becoming an election-year issue, they said. It has been three decades since food inflation excited political concern.
U.S. cattle prices defied expectations by recovering quickly from the discovery of one case of mad cow disease at the end of 2003. Market prices are above government forecasts, prompting a second look at estimates of an overall increase in food prices this year of 2.2 percent to 3.2 percent.
"Right now, I'd say we are at the top end of that," said Ephraim Leibtag, the U.S. Agriculture Department's food price expert. "Meat prices aren't falling as we expected."
Meat accounts for 10 percent of Americans' food spending.
Public opinion surveys showed consumers did not stop eating beef after the mad cow case was reported. Some analysts credit the popularity of protein-rich, low-carbohydrate diets for bolstering demand for beef, pork, poultry and eggs.
Slaughter cattle sold for $82 to $83 per 100 pounds last week in the U.S. Plains states, about $2 above USDA's forecast of average prices for the January through March quarter.
Foodmakers also face rising prices for wheat, corn and soybeans, ingredients used in both livestock and human food. Soybean futures prices recently soared to a 15-year high.
Higher-priced ingredients could pinch food manufacturers.
This year's harvest critical
"Some of that is going to translate into higher prices at the checkout counter," said analyst Mark McMinimy of Schwab Washington Research, a consulting firm. "The critical thing is going to be the outcome of this year's harvest."
The U.S. soybean stockpile is expected to shrink to a bare-bones level by harvest. Drought pared winter wheat sowings but normal yields would mean bumper corn and soybean crops.
General Mills Inc., a major foodmaker, said last month that "commodity costs are coming in higher than planned" during the current fiscal year and could affect its earnings.
Noting strong cattle and dairy prices, Scott Brown of the Food and Agricultural Policy Research Institute said, "We're getting closer to the kinds of increases that were seen in 2001," when prices rose 3.1 percent. That was the largest since 3.3 percent in 1996 and a 5.8 percent spike in 1990.
It is too early to tell if cattle prices would remain strong, said Brown at FAPRI, a University of Missouri think tank. "I could tell you both sides of the story for 2004."
As examples, he noted Japan and South Korea have not decided whether to buy U.S. beef again and the United States must decide whether to allow imports of Canadian cattle.
U.S. poultry exports also were in question because of bird flu cases that have emerged in five states in recent weeks.
Food price inflation usually mirrors the overall U.S. inflation rate, which is forecast to be low this year.
Americans are forecast on average to consume 66.8 pounds of beef, 51.6 pounds of pork and 102.2 pounds of poultry this year — a total of 222.3 pounds or 0.61 pounds (0.28 kg) a day.
Consumers spend roughly 10 percent of their disposable income on food. Farmers get just 19 cents out of each $1 spent on food, with the remainder going to food processors, shippers, packaging and advertising costs.