Sick of rising food costs?
Blame it on the weather, and then make up your mind to get used to higher prices. The situation likely won't change for the foreseeable future, say commodities watchers.
If there's any good news, it's that pizza-related supplies remain strong. The cost of moving those goods from the farm to the back door, however, is on a steady climb predicted to continue well into 2006. Sooner than later, those increases will be endusers' problems.
About 8 percent short, according to Chris Rufer, founder of tomato processor Morningstar Packing Co.
"It's not as bad as everybody thought it might be ... (so) there should be plenty of red stuff for pizzas," said Rufer. "They estimated it would be 10.4 (million tons) and it came in at 9.6 (million tons). In mid-season there was a lot who thought it would come in under 9."
In 2004, California produced a record crop of 11.6 million tons of process tomatoes, some 18 percent more than this year. But while that surplus will help keep pizza sauce costs from spiraling out of control next year, energy costs will factor in negatively and drive prices up. According to the California Tomato Growers Association, growers spent an average $306 more per acre this year on their crops than in 2004 due to rising prices for diesel fuel (up 45 percent), fertilizer and seed. Rufer said some of that increase was planned into contracts priced out in the spring, but no one imagined how hard Hurricanes Katrina and Rita would hurt everyone later in the summer.
"The growers and processors didn't make out very well financially, but they'll make it back next year," Rufer said. Cost hikes they'll pass along to endusers will be realized in "'06, when I expect prices to be up about 10 percent or so."
And that's just on tomato products remanufactured from paste. Users of fresh-pack products should expect to see their per-case price rise about 50 cents because of increased costs for steel cans. "On products that cost $9 to $15 (per case), that's a significant increase," Rufer said.
The tomato torture doesn't end there. The cost of fresh tomatoes will spike to at least double the normal cost due to recent damage done in south Florida by Hurricane Wilma. Florida Tomato Committee manager Reggie Brown told the Naples Daily News he doesn't expect tomato prices to reach 2004's post-hurricane record of $60 a case. But Chris Muller, professor and director of the Center for Multiunit Restaurant Management at the University of Central Florida is forecasting "a major spike in prices. ... But I think they'll come down fairly quickly, like they did last year."
Don't blame the cheese
Unlike in 1998 and 2004, when cheese prices rocketed to historic highs, cheese costs are expected to remain affordable and stable well into 2006. Despite analysts' predictions that 40-pound blocks would visit the $1.50-plus range in the fourth quarter, blocks have traded in the $1.40s, a favorable number for dairy farmers and pizza operators.
A late October cheese report from the USDA called demand moderate, even as the holiday buying season is ramping up. "Cheese production is steady to often lighter seasonally," the report read. Through the first quarter of 2006, Class III milk futures point to steady prices as well. Marketing consultant Ed Zimmerman, who works with the California Milk Marketing Board, said the current calm in the cheese market reflects a long-awaited balance of supply and demand.
"Three years earlier, when demand dropped, dairy farmers got hammered," said Zimmerman. "To balance the supply, farmers take cows out of production. ... Now what we're seeing is a sort of oversupply of milk with demand falling a bit. So when you look over the next year, the USDA and other prognosticators are saying this could be how things are for a while."
According to the USDA's most recent report, milk output per cow is expected to stay strong well into 2006, and that should keep pressure on current cheese costs.
Meat costs holding steady
In 2006, the USDA expects cattle prices will be down slightly from 2005 levels, though futures trading points to 2006 that will be a little higher than expected.
Muller said beef prices actually fell recently after modest reductions in dairy herds moved more meat to the market, but strong demand returned them to mid-summer levels. Like futures players, he expects no great increase in beef or pork prices, but he's keeping an eye on poultry, which is a tad unpredictable. Despite early concerns that Hurricane Katrina did significant damage to poultry farms in the South, those fears went unrealized.
"The poultry business is very localized and widely
The growers and processors didn't make out very well financially, but they'll make it back next year." Cost hikes they'll pass along to endusers will be realized in "'06, when I expect prices to be up about 10 percent or so.
— Chris Rufer, Founder, Morningstar Packing
What could push prices upward is Avian flu, even if it never makes it to American shores. With wholesale slaughter of poultry inventories beginning in some Far Eastern nations, demand for U.S. exports is increasing, which may influence prices at home.
If the virus makes it to the U.S. and live inventory is destroyed, the impact will be significant, though temporary.
"Even if they have to slaughter 200,000 birds, we have so many areas where poultry is produced that it's not going to be a big deal for very long," Muller said. "That inventory can be replaced fairly quickly, too, so it's something we could overcome."