Anyone who has been to the grocery store recently may have noticed the rising price tags of items from nuts to meat and corn. The extent of the hikes was illuminated in the most recent report from the American Farm Bureau Federation, which said that a classic Thanksgiving dinner consisting of turkey, stuffing, cranberries, pumpkin pie and the trimmings will cost 13 percent more this year than it did last year.
Rising Costs for Classic Dishes
AFBF’s annual informal price survey of the items most typically included in the Thanksgiving feast, led to the conclusion that the average cost of a Thanksgiving feast for 10 in 2011 is $49.20, or $5.73 more than last year’s average of $43.47. According to the survey, the cost of a gallon of whole milk rose by 42 cents, to $3.66, while a 30-ounce can of pumpkin pie mix, was 41 cents more. A half a pint of whipping cream was 26 cents more expensive at $1.96 cents while a packet of cubed bread stuffing was 24 cents more this year. Sweet potatoes and cranberries were each up 7 cents year-over-year. Turkey, the big ticket item for many Thanksgiving shoppers, came in at 25 cent per pound more than in 2010. The higher costs could be partially associated with the rising price of transport, which also had an impact on Thanksgiving travel, but there are other factors at play as well.
Among the other major drivers of the rise in price has been a higher demand for meat, in this case turkey, both domestically and overseas. The emerging middle class in nations like India and China, which are both seeing economic growth around 7 and 9 percent respectively, and are expecting to include more meat in their diets. Their rising global economic status has allowed the carnivores in these nations to pay a premium for their meat and people around the world are paying the price of the new demand.
Commodities such as corn and wheat have also been sky rocketing as the increased amounts required for use as feed for a growing number of animals puts pressure on supply. Corn, as measured by the Teucrium Corn Fund (CORN), is up 18 percent year-over-year and higher by 52 percent on a five-year basis. PowerShares DB Agriculture Fund (DBA), which tracks a basket of commodities has been relatively stable in 2011, but is up 16 percent over five years. Naturally, these levels have affected major meat companies like Tyson (TSN) and Hormel (HRL) who are struggling to break even in some areas, as they attempt to determine the appropriate rise in price tag to account for the higher costs for feed and shipping.
In many cases, specifically with Tyson, the companies are relying on their new international customers to help neutralize some of the severity in domestic cost increases, but they can only charge so much for their meat overseas. Food products from well recognized names are especially in demand internationally and consumers will pay a premium to feel assured that the meat is safe. Still, Americans cannot avoid paying higher prices as well and many must familiarize themselves with the notion that meat will become a luxury for many Americans when it has long been considered a dietary staple.
The price of food can be anticipated to continue to increase, with next Thanksgiving dinner perhaps even more expensive than this year. Tyson’s most recent earnings for the quarter ending in September indicated that the chicken division, which accounted for 33 percent of their business, would not be profitable. Chances are, adjustments will be made in pricing that will land on the consumer to insure next year’s profitability.
Price Increases Also Hit Retailers
Major food companies won’t be the only ones tired of swallowing cost increases out of fear of scaring off costumers. Retailers too are beginning to tire of the slimmer margins in recent years. According to the AFBF piece, “the era of grocers holding the line on retail food cost increases is basically over.” Retailers are reportedly beginning to more freely transfer costs of higher shopping, processing and storage onto consumers. With these trends in retail and in the cost of meat, the degree to which consumers will take on the added costs could threaten the presence of the Turkey on the table in several years time.
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