The high cost of fuel and fertilizer over the last months are built into the prices, and it takes a good while for any favorable change to make a difference. I know that a lot of ranchers around here didn’t fertilize their fields, didn’t improve land, sold animals and reduced production because the price of producing grass and hay spiked due to fuel costs. Feed lots are “upstreaming” costs back to the farmers who have to produce larger animals, requiring greater resources. Some segments of the food industry are losing their backsides. If you want to see an example, go to CNN Business and look up “Pilgrim’s Pride”, the biggest poultry procesor in the U.S. It’s about to go under because of feed and fuel prices, and the recent downturn in those prices is probably too late to save the company, because they’re still selling their product at a loss.
But if Pilgrim’s Pride goes down, and its production gets permanently shuttered in, the poultry market will be totally dominated by Tyson Foods and Sanderson Farms, and then you’ll THINK price increases. Sanderson has already reduced production, and sometime in 2009, so will Tyson’s.
As with the cattle producers in my area, it takes a long time to get production back up once it has been reduced, particularly when some producers quit entirely.
Wait until 2009. Increased food prices will be a lot worse.