Stephen Foley: Don't go hog wild at the meat counter

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The Independent Online

US Outlook: Charlie Sheen references abound. The good farmers of Smithfield Foods, on a triumphal earnings call with analysts this week, couldn't resist a joke. "To paraphrase a modern philosopher," said finance chief Bo Manly, "we are winning."

So they are. As commodities-price inflation squeezes itself gradually through the economy, like working to get toothpaste out of an old tube, giants such as Smithfield – the world's largest producer and processor of pork – have the muscle to keep cost increases to a minimum through hedging, and then to pass on the remainder to their customers.

Not so everybody in the chain, which is why many executives at Smithfield, and experts outside the company, think meat prices could be the next big price spike in the world's ongoing commodities boom. (LCM Research tipped Smithfield as a winner only a couple of days before, in an investor strategy note entitled, inevitably, "Where's the Beef?")

Corn and wheat prices have enjoyed a well-known surge that has raised food prices everywhere, thanks to rising demand and speculators' bets on more to come.

There is a second order effect. A pig's gotta eat, too. Facing soaring feedstock prices, small farmers have decided to take more of their livestock to slaughter in recent months. Many have shut down entirely.

World pork production had only been expected to increase 2 per cent this year in any case, and world beef production has been falling for several years. Smaller herds will suppress supply for years to come, just as the burgeoning middle classes of emerging economies want to put more meat on the table.

Price inflation in the US (unlike in the UK) is more imagined than real. Consumer price rises remain low across the economy as a whole. But for some of our favourite and flavoursome products, we will increasingly feel the pinch. Shoppers can't afford to go hog wild at the meat counter.