By Steve Rothwell
Breakfast is now being served with a side of sticker shock.
The price of bacon is surging and the cost of other morning staples, like coffee and orange juice, is set to rise because of global supply problems, from drought in Brazil to disease on U.S. pig farms.
And it’s not just the first meal of the day that’s being affected. The cost of meats, fish and eggs led the biggest increase in U.S. food prices in nearly 2½ years last month, according to government data. An index that tracks those foods rose 1.2 percent in February and has climbed 4 percent over the last 12 months.
While overall inflation remains low, the increases in food prices are causing shoppers to look for deals.
Even though food companies use a range of cost-cutting methods to limit the effect of higher food costs, consumers will likely feel the “ripple effects” of rising commodity prices, according to the Grocery Manufacturers Association, a trade organization for more than 300 food, beverage and consumer product companies.
Here’s a rundown:
The price of lean pork in the futures market is at record levels and is up 52 percent since the start of the year, to $1.31 a pound. Traders are concerned about a deadly virus in the U.S. hog population.
That could further boost bacon prices, which were already rising after farmers cut pig production because of higher feed costs. Those costs climbed after a drought in 2012.
The average price of a pound of sliced bacon in U.S. cities was $5.46 in February, up from $4.83 a year earlier and $3.62 five years ago, government data shows.
The retail price of pork is projected to climb by 2.5 percent to 3 percent this year, according to government forecasts.
Traders don’t know exactly how badly the virus will impact pork production because it’s the first time that PED has been detected in U.S. herds, says Dennis Smith, a commodity broker at Chicago-based Archer Financial Services.
Coffee futures have surged 57 percent this year and this month rose above $2 a pound for the first time in two years. Coffee growing regions of southern Brazil, the world’s largest coffee producer, have been hit by drought. Analysts are forecasting that Brazil’s crop could shrink by about 20 percent this year.
Coffee is a major part of Orrville-based food giant J.M. Smucker’s revenue and profit. Coffee made up $2.3 billion of the $5.9 billion in revenue in 2013 for Smucker. Coffee also generated $607.7 million in segment profit for the company — nearly half of the $1.22 billion in segment profit Smucker reported last year.
Shoppers should be prepared to pay more at grocery stores, if the current trend continues for more than a month, says Dan Cox, the president of Coffee Analysts, a company that tests coffee quality for retailers.
Starbucks customers also shouldn’t worry. They won’t be paying higher prices even if the cost of the beans keeps going up, says CEO Howard Schultz. The company has locked in its coffee bean prices for the next year using futures contracts.
Orange juice futures are up 12 percent this year, and climbed as high as $1.57 a pound March 6, their highest price in two years.
To be sure, moves in retail food prices won’t match the wild jumps in commodities markets, says David Garfield, a consultant at AlixPartners who advises food-makers. The reason: food companies worry about losing market share and will absorb some of the higher costs rather than risk losing customers.
The price of a 12-ounce can of frozen orange juice edged up in February to $2.43 from $2.41 in January, according to government data.
Florida’s orange crop is forecast to be the worst in almost a quarter of a century. A citrus greening disease, which is transmitted by tiny insects that feed on the leaves of oranges, is damaging the harvest. Infected trees start to produce bitter green fruit. The problem was first detected in the U.S. in September 2005 and the Florida orange juice crop is down by almost a quarter since then.
No cure is known, and the only solution is to cut down the tree.
The orange crop in Florida, one of the world’s biggest orange-growing regions, could fall this year by about 15 percent to 114 million boxes, according to government forecasts. That would be the smallest crop since 1990.