Rising commodity prices fuel inflation, raise recession risks

Wholesale commodity prices for food, fuel and other economic essentials continue to rise with 30 of the 38 commonly traded commodities priced higher than a year ago, according to data from the U.S. Department of Agriculture (USDA).

Leading the commodity price inflation were turkey breast prices rising 166.5% higher than the same week in 2021. Turkey breast prices rose $4.50 per pound this week, compared to $1.70 per pound a year ago and a 5-year average wholesale price of $2.40 per pound.

With prices running high, turkey processors like Cargill and Butterball have boosted production in 2022. The 5-year average for March shows processors with 2% fewer poults placed. USDA also reported turkey in cold storage was running lower than a year ago with about 270 million pounds in the freezer. Other turkey meat prices are also higher than a year ago with thighs up 53% and whole birds prices 31.2% more than a year ago on the wholesale market.

Chicken breast prices are up 87.3% from a year ago this week. Boneless, skinless chicken breasts were selling at nearly $3 a pound this week, rising from about $1.50 a year ago. Tender prices rose to $2.80 per pound, compared to $1.60 per pound a year ago, which was also the commodity’s 5-year average. Other cuts of chicken such as legs and wings are lower in price than a year.

Chicken processors like Tyson Foods and Pilgrim’s increased production in February but have since pulled back on the number of birds slaughtered with the amount of chicken sitting in cold storage rising to 782.5 million pounds as of Feb. 28. Chicken stocks rose 1.5% from January.

Ben Bienvenu, an analyst with Stephens Inc., said Tuesday that improving demand continues to pull hard on available supply and issues with the supply chain and labor shortages will make it harder for processors to keep up with demand recovery.

“While many producers would likely desire to further ramp up production, flock genetics, labor constraints and high feed and freight costs remain headwinds for the industry,” noted Bienvenu.

The main feed ingredients chicken and turkeys eat include corn and soybean meal which are also more expensive than a year ago. Wholesale corn prices are up 34% from a year ago and soybean meal is 19.6% more expensive. Higher feed grain costs would normally compress meat processor operating margins but processors have been able to more than offset those increases by raising consumer prices.

The U.S. commercial poultry industry is also being impacted from the latest round of Avian Influenza known as HPAI that has depopulated more than 14 million head of chicken and 2 million head of turkey that would have been gone into the food chain.

Manufacturers also rely on natural gas, electricity and crude oil which is used to make gasoline and diesel to run their operations.

U.S. natural gas booked a triple-digit increase at 117.3% amid more usage this winter and tightening global supply since the Russian Ukrainian conflict has continued. Crude oil, which is important to industrial manufacturing and U.S. gasoline prices also pushed higher this week, rising 86.8% from the same week a year ago, according to the USDA report.

Regular gasoline prices averaged $4.244 per gallon this week at U.S. pumps, according to AAA. Prices are up 47% from a year ago. Gasoline prices rose 17.5% from last month. AAA said diesel prices are average $5.127 a gallon this week across the U.S. That is up from $3.098 a year ago, an increase of 65%. Diesel prices rose 28% from a month ago.

Fuel prices in Arkansas are lower than the national average with regular gasoline costing $3.818 on average today (March 29) with diesel costing $4.836. Gasoline prices in Arkansas are up 42% and diesel prices are up 61% from a year ago.

Tyson Foods and other manufacturers in Arkansas also operate private truck fleets that move animals from farms to slaughter houses and move products from processing plants to retail manufacturers of cold storage facilities. Those without a private fleet also are paying higher freight rates with trucking partners because of rising fuel costs.

Given the rising input costs for manufacturers the final prices of goods sold into retail and on to consumers are also soaring higher. Earlier this month the Consumer Price Index for all urban consumers rose 7.9% from a year ago. Energy prices were 25.6% higher and food prices were up nearly 8% from the year ago period. Other items besides food and fuel saw prices increase 6.4% last month. Consumers have to go back nearly 40 years to see this level of inflation in food this high, according to the U.S. Bureau of Labor Statistics.

Jan Hatzius, chief economist at Goldman Sachs, recently noted lower economic growth forecasts from runaway inflation and rising interest rates increase the risk of recession next year in the U.S. and across Europe.