U.S. trims food inflation forecast

Jan 29, 2010
by DTN

USDA trimmed its food inflation forecast for 2010, projecting prices at grocery stores and restaurants will rise at the same rate. USDA lowered the con- sumer price index for all food to gain 2.5 percent to 3.5 percent from its December forecast of 3 percent to 4 percent. The outlook changed because government forecasters don’t expect food prices at restaurants to advance as much as expected.

USDA also pared its price inflation outlook for fish, oils and fats at grocery stores.

It affirmed its inflation targets for meats, cereal and sugar. Sugar prices are flirting with 29-year highs in the futures market due to tight global supplies. For 2010, USDA forecasts grocery store and restaurant prices will both rise 2.5 per- cent to 3.5 percent.

“Retail food price inflation in 2010 will rebound from the 2009 level toward a mod- erate level, slightly above the long-term historical av- erage,” USDA said. Food price inflation will not be as strong as 2008, when corn, wheat, soybean and fuel prices skyrocketed, sending the all-food CPI price index up 5.5 percent, the government said.

Food inflation was tame last year, with the all-food index up 1.8 percent over 2008.

In 2009, food-at-home prices (supermarkets) increased just 0.5 percent—the lowest annual increase since 1967, according to USDA figures. Inflation was tempered by a 6.4 percent drop in dairy prices and a 4.6 percent decline in fresh produce.

Deflation, price wars and high U.S. unemployment have dented same-store sales at U.S. supermarket chains Supervalu, Safeway and Kroger.

“While food retailers continue to experience food retail price deflation, if the Food CPI stays at current levels, it will be inflationary by July 2010,” Janney Montgomery food analyst Jonathan Feeney wrote in a research note.

He said Kroger is the best risk-reward stock play on food inflation.

The hyper-promotional and deflationary environment is likely to come to an end in the next three to six months, according to another food analyst.

In a January 20 report, Jefferies & Co. analyst Scott

Mushkin said price competition appears to be easing, based on supermarket basket-pricing surveys his team conducted in Boston, Chicago and Los Angeles.

Meats, dairy and eggs

At supermarkets, meat, poultry and fish prices are forecast to be higher this year, up 1.5 percent to 2.5 percent, compared to a 0.5 percent gain in 2009, according to USDA, which left its 2010 forecast unchanged.

Over the past year, producers Smithfield Foods, Tyson Foods, Sanderson Farms and Pilgrim’s Pride have all cut production to shore up their battered finances.

Pork is forecast to be the biggest beneficiary.

Retail pork prices are projected to jump 1 percent to 2 percent after declining 2 percent in 2009. Retail poultry prices are expected to rise 1 percent to 2 percent compared to a 1.7 percent gain last year.

USDA forecast retail prices for dairy products will rise 2.5 percent. They fell 6.4 percent last year. Egg prices at supermarkets are forecast to increase 2 percent to 3 percent. They dropped 14.7 percent last year. — DTN