Source: Lisa M. Keefe, MEATINGPLACE, 2/3/17



The cost of food around the world is at its highest point in two years, as measured by the United Nations’ Food and Agriculture Organization’s Food Price Index, the agency reported.

The index — a measure of the monthly change in international prices of a basket of food commodities — stood at 173.8 points in January 2017, up 3.7 points (2.1 percent) from the revised December value, the FAO said in a news release — its highest value since February 2015 and as much as 24.5 points (16.4 percent) above its level in the corresponding period last year.

But the surge in prices is not being driven by meat, as has often been the case in the past. In fact, the FAO Meat Price Index averaged 156.7 points in January, almost unchanged from its revised value for December.

Increases in beef prices were offset by drops in the cost of lamb and mutton, as well as poultry and pork over the period, “with a market characterized by generally abundant world supplies and stable demand,” the FAO said in its release.

(The FAO said, however, that unlike for other commodity groups, most prices used in the calculation of the FAO Meat Price Index are not available when the FAO Food Price Index is computed and published; therefore, the value of the Meat Price Index for the most recent months is derived from a mixture of projected and observed prices. This can, at times, require significant revisions in the final value of the FAO Meat Price Index.)

Pork
Pork is an especially heavy drag on prices currently, particularly in the United States. A post-PEDV boom in hog production means USDA expects meat companies to produce some 26 billion pounds of pork products in calendar 2017.

In the most recent World Agricultural Supply and Demand Estimates (WASDE), USDA raised its 2017 pork production estimate by 400 million pounds (up 1.5%) from the December level, and analysts now expect the pork industry to surpass last year’s record levels of production by an additional 1.27 billion pounds, to 231 million pounds total (up 4.4 percent) compared with 2016 results.

Much of that meat is expected to be exported to other countries, especially Mexico. Those export levels are in question, given the controversies surrounding President Trump’s policies on trade and immigration., although January shipments were up about 15 percent compared with 2016 levels.

Along those lines, as well, Rabobank analysts are watching China’s import levels for pork after the Chinese New Year holiday, currently underway. “Prices will also be affected by the slow increase in global supply, supported by growing productivity and rising sow numbers,” Albert Vernooij, Rabobank animal protein analyst, in a news release.

The margin split in the U.S. industry will continue in the first half of 2017. Rising production will continue to pressure farmers’ margins, while demand—both for packing capacity and for pork—will support packers’ margins. However, trade developments and the impact of exchange rates will be the wildcards, especially for packers.

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