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U.S. Taste for Beef Raises Cost of Food

Prices could climb by more than 3% this year, not enough to spark political concerns, economists say.

March 29, 2004|Charles Abbott | Reuters

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 rise more than 3% this year, a 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% to 3.2%.

"Right now, I'd say we are at the top end of that," said Ephraim Leibtag, the U.S. Department of Agriculture's food price expert. "Meat prices aren't falling as we expected."

Meat accounts for 10% of Americans' food spending.

Public opinion surveys showed that 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 Plains states, about $2 above the USDA's forecast of average prices for the January-through-March quarter.

Food makers 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.

"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.

Food maker General Mills Inc. said last month that "commodity costs are coming in higher than planned" in the fiscal year and could affect profit.

Noting strong cattle and dairy prices, Scott Brown of the Food and Agricultural Policy Research Institute at the University of Missouri said, "We're getting closer to the kinds of increases that were seen in 2001," when prices rose 3.1%. That was the largest since 3.3% in 1996 and a 5.8% increase in 1990.

It is too early to tell if cattle prices will remain strong, Brown said. "I could tell you both sides of the story for 2004."

He noted that 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.

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