USDA warns of sticker shock on U.S. beef as grilling season starts

By Ros Krasny

WASHINGTON (Reuters) - The Department of Agriculture has warned of sticker shock facing home chefs on the eve of the Memorial Day holiday weekend, the unofficial start of the U.S. summer grilling season.

The agency said conditions in California could have "large and lasting effects on U.S. fruit, vegetable, dairy and egg prices," as the most populous U.S. state struggles through what officials are calling a catastrophic drought.

The consumer price index (CPI) for U.S. beef and veal is up almost 10 percent so far in 2014, reflecting the fastest increase in retail beef prices since the end of 2003. Prices, even after adjusting for inflation, are at record highs.

"The drought in Texas and Oklahoma has worsened somewhat in the last month, providing further complications to the beef production industry," USDA said.

Beef and veal prices for the whole of 2014 are now forecast to increase by 5.5 percent to 6.5 percent, a sharp advance from last month's forecast for a 3 to 4 percent rise. Pork prices are set to rise by 3 percent to 4 percent, up from a 2 to 3 percent advance expected a month ago.

The USDA said overall U.S. food price inflation for 2014, including food bought at grocery stores and food bought at restaurants, would rise by 2.5 percent to 3.5 percent in 2014.
That is up from 2013, when retail food prices were almost flat, but in line with historical norms and unchanged from April's forecast.
"The food-at-home CPI has already increased more in the first four months of 2014 then it did in all of 2013," USDA noted. At-home spending accounts for about 60 percent of the U.S. food CPI.
A major factor for rising pork prices is the Porcine Epidemic Diarrhea Virus (PEDv), responsible for more than 7 million U.S. piglet deaths in the past year.
Egg prices are also climbing - up 15 percent in April alone - and are expected to rise by 5 to 6 percent on the year, and higher milk prices are feeding through to other products in the dairy case, particularly cheese.
Sweet lovers and caffeine addicts will see some relief, however, since global prices for sugar and coffee remain low, USDA said.
The agency forecast prices of sugar and sweets to rise by 1 percent to 2 percent in 2014 and prices for non-alcoholic beverages to rise by 1.5 percent to 2.5 percent. Both forecasts were lowered this month.

"It appears supermarkets are maintaining minimal price inflation on packaged food products, possibly in an effort to keep prices competitive in light of rising cost pressures for most perishable items," USDA said.

So far the severe California drought has not had a discernible impact on national fruits or vegetable prices, USDA said, while warning that the effects are still to come.

(Reporting by Ros Krasny; Editing by Eric Beech, Doina Chiacu and Bernadette Baum)