Consumers facing record prices for bacon

Bacon lovers in the U.S. are paying record prices during the seasonal summer peak for consumption, and costs may keep rising
through August because smaller hog herds led to an unprecedented plunge in meat inventories.

Wholesale pork bellies, which are cured and sliced to make bacon, are up 72 percent in the past year, to $1.4308 a pound,
the highest price since at least 1998, government data show. Stockpiles in warehouses monitored by the Chicago Mercantile
Exchange tumbled 73 percent in the year through July as U.S. hog producers cut their herds to stanch losses in 2008 and 2009.

Prices usually climb in August, when tomatoes are ready for harvest in the Midwest and more people eat bacon, lettuce and
tomato sandwiches, said Altin Kalo, a commodity analyst for Steiner Consulting Group. While pork bellies will probably fall
later this year as demand slows, the costs will be records for each month through year-end because of tight supplies, he said.

“What you have with bacon is what economists call inelastic demand, meaning it doesn’t vary much,” said
Chris Hurt, a livestock economist at Purdue University in West Lafayette. “If a person wants a BLT sandwich and likes
that in summer when their patio tomatoes come on, then it doesn’t make a difference if bacon is $2 a pound or $6 a pound.
They’re going to go out and buy it. When it’s in short supply and a lot of people want it, they’ll pay a
higher price.”

The U.S. consumes more than 1.7 billion pounds of bacon annually at restaurants and other food service companies, the National
Pork Board said in May. Bacon is the second fastest-growing pork item in food service, behind ground pork, the Des Moines,
Iowa-based trade group said. Only China and the European Union eat more pork than the U.S.

While overall food inflation is forecast to rise 1.5 percent to 2.5 percent this year, pork’s rally has fueled a bigger-than-expected
jump in retail meat prices, which have gained 6.1 percent since the end of December, U.S. Department of Agriculture data show.

On the Chicago Mercantile Exchange, pork-belly futures for August delivery jumped the exchange limit for a second-straight
day Tuesday, climbing 3 cents, or 2.8 percent, to $1.095 a pound, the highest level since July 2004. The most-active contract
has surged 77 percent in the past year.

Expectations of improved pork profit led Farha Aslam, an analyst at Stephens Inc. in New York, to raise her earnings estimate
for meat-processor Tyson Foods Inc. to 60 cents a share for the quarter ended in June, up from 56 cents.

Meatpackers and retailers were caught short of supply this year after surpluses sent prices plunging in 2009, Kalo said from
Manchester, N.H. Wholesale-pork prices tumbled to a six-year low in August 2009, as an outbreak of swine flu sapped exports
and U.S. demand waned because of the recession.

“We’re always fighting last year’s battles,” said Kalo, whose company consults for food retailers
and processors. Users “got caught with a lot of inventory around last year, and then demand got a bit soft, and we saw
prices of bellies drop. This year they weren’t as aggressive in storing it.”

Nationwide pork-belly inventories peaked this year in March at 58.76 million pounds, USDA data show. That’s 26 percent
less than the high in 2009, reached in April, of 79.54 million pounds.

Wholesale pork bellies may remain near current record prices until the end of August, before dropping to an average of $1.17
a pound in September, Kalo said. That would still be 77 percent higher than in September 2009, and would mark the highest
average price ever for the month.

Kalo expects that monthly average pork-belly prices will top year-over-year records through December.

The U.S. hog-breeding herd is near the smallest on record, after pork producers lost about $6 billion from late 2007 through
early 2010, according to University of Missouri data. Total hog inventories on June 1 dropped 3.6 percent from a year earlier,
to 64.4 million animals, the USDA estimates.

The available supply of hogs to slaughterhouses tends to be the tightest of the year during July and August, Kalo said. Hot
weather curbs weight gains, so animals have to spend more time on feed getting heavy enough for slaughter, he said.

Lawrence Kane, a livestock-market adviser at Stewart- Peterson Group in Yates City, Ill., said demand for pork bellies is
“solid” in the U.S.

“Price may not be a real major factor to a lot of people,” Kane said. “My wife said it was $5.99 a pound
for bacon at the grocery store the other day. But she bought two packages instead of one, so we’ll have it on another
night.”

Retail bacon prices in the U.S. averaged $4.046 a pound in June, the highest since at least 1980, according to the Bureau
of Labor Statistics.