Record Wholesale Turkey Prices May Just Be the Beginning

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Generally speaking, it takes a while for monetary policies to have an impact upon consumers' wallets. But for families buying turkey this Thanksgiving, the effect of quantitative easing may be quick and unpleasant. Currently, wholesale turkey prices are hovering around $1.09 per pound, the highest they've ever reached. This represents a 28% increase over 2009's prices and a 37% increase over 2008's. While many retailers are selling birds below cost to draw in customers, fans of free range, organic or other specialty birds are likely to feel the bite.

Several factors have contributed to the rising price of turkeys, including the fact that they were undervalued in 2008. But one major factor may be quantitative easing. Trying to protect against deflation, the Federal Reserve poured money into the economy in 2009 and 2010. In the process, it spurred at least some inflation, particularly pushing up the prices of securities and commodities.

Among other things, the easy money resulted in more costly energy, which is used to raise turkeys, and oil, which is used to bring them to market. Because of corn-based ethanol production, the price of corn is tied to the price of oil, which means corn prices have also gone up by 47% in the last year. Since 70% of turkey feed is composed of corn, this has further fueled a rise in turkey costs.

Retailers Eat Rising Costs

To make things worse, as rising costs have narrowed profit margins, turkey production has fallen. According to the U.S. Department of Agriculture, turkey output has dropped from 5,663 million pounds in 2009 to 5,587 million pounds this year, about a 1% reduction. Stocks of frozen birds have also fallen: Between September and October of this year, 6% fewer turkeys made it into freezers. Since last year, the number of frozen turkeys has fallen by 23%.

Because of competition, many retailers have tried to keep turkey prices low, hoping that other Thanksgiving purchases will make up for the money they lose on birds. Even so, retail prices for turkey are up almost 8% over 2009, to their highest rate since 1980. So, even though grocery stores have tried to shield consumers from the highest turkey prices in history, the average pre-holiday price is still at a 30-year high.

As Daily Finance's Vishesh Kumar notes, the run-up in turkey prices are merely an early sign of rising prices for food, clothing and other consumer goods. According to the Agriculture Department, the overall food inflation rate between 2009 and 2010 was between 0.5 and 1.5%, the lowest annual increase since 1992. However, it also notes that rising commodity costs will probably result in further inflation. Its latest forecast calls for food costs rising 2% to 3% in the first half of 2011.

Looks like the shock of this year's pricey Thanksgiving will likely be repeated at Christmas, New Year's and Easter.

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