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Bloomberg:Volatility for Breakfast: Egg and Bacon Prices Go Opposite Ways
by Mark Glassman
11:49 AM EDT
May 27, 2015

This chart shows how the price of the American breakfast is out of sync—and likely to stay that way

You can’t put a single price on the American breakfast—at least, not for any length of time. The cost of foods commonly eaten at breakfast fluctuate independent of one another. The last year has seen egg prices jump and bacon prices crash, while cereal remains almost dead-even.
That different foods will be affected by varying market forces isn't surprising, but ongoing shifts in the cost of breakfast foods have been significant enough to affect how people eat. Cheap bacon, for instance, is suddenly found in all sort of counterintuitive places—even atop veggie burgers.
To track the changing prices paid by consumers for five staples at the breakfast table— eggs, bacon, cereal, bananas, and coffee—we looked at the components of the Consumer Price Index from April 2014 to March 2015. Egg prices jumped more than 5 percent, the biggest gain among the five foods, even as the broader index barely budged. At the same time, bacon prices collapsed.



Some of the price swings in breakfast’s underlying commodities have been more severe than consumers might be able to detect on a trip to the grocery store. The spot price of pork bellies, used to make bacon, fell 54 percent in the 12 months prior to March 31, even though consumers are paying just 7 percent less for the end product, based on CPI data. That’s partly because food manufactures take measure to offset volatility and don’t pass all cost savings or increases on to consumers.
Still, anyone budgeting for a morning meal will have seen things get strange in the past year. Here’s a look at what’s changed—and why.
Eggs
The American embrace of a higher-protein diet has helped drive egg prices higher. Over the past five years the price of eggs climbed by a third—and that was before an outbreak of avian flu started cutting into the nation’s egg supply.
Approximately 40 million birds have been affected since the disease was first detected in December, according to the Department of Agriculture. Earlier this month the USDA lowered its forecast for egg production and now projects an annual decline for the first time since 2008. Goldman Sachs says consumers may spend as much as an additional $8 billion on eggs this year because of the disease.
Companies have already responded. Food manufacturer Post Holdings has warned investors that the bird flu will weigh on its earnings in fiscal 2015. At least one giant distributor, Sysco, is in talks with its customers about switching their menus to cope with costlier eggs. If other companies follow, that could mean a noticeable drop-off in egg items served at restaurants.
Compounding the problem is a new California law that has made egg farming more expensive. The law requires larger cages for hens; even farmers from outside the state who wish to send their eggs to California must abide by the rules. Some farmers have pared hen flocks to make room for larger accommodations, and some outside the state have halted shipments to California. Egg prices in California have surged.
Bacon
Retail bacon prices hit a record high last summer, hovering for months above $6 per pound. Behind the pricey pork was new demand, coupled with a sudden drop in supply caused by a porcine epidemic diarrhea virus that killed more than 7 million hogs. But the high price didn't last long. The hog population rapidly rebounded in the past year, prices dropped dramatically, and bacon suppliers rejoiced. Ohio-based Sugar Creek Packing told Bloomberg News that it is working seven days a week to fill orders and now projects a 15 percent jump in sales this year.
Cereal and Bananas
Breakfast cereal prices have been more or less flat for the last year, as measured by CPI. It’s difficult to raise prices when fewer people are buying. The high-protein trend hasn't helped, and gluten-free diets have been a big problem for cereal makers. Kellogg’s revenue from its U.S. morning foods and Kashi division has been declining since 2011, contributing to the company's having missed overall sales estimates in seven of the last nine quarters. General Mills’ cereal division has held up better after changing the ingredients in some of its products.
Banana prices have held fairly steady over the last year. The most commonly eaten fruit in the U.S. enjoys its preeminence, in part, because it remains so cheap. Pound for pound—and the average American eats more than 10 lbs of bananas per year—the yellow fruit costs less than half the price of apples and oranges. With demand holding steady, any significant change in price would probably have to come from either a new market efficiency that could be passed on to consumers or some disruption to the supply chain. Really bad weather could do this, as could climate change.
Coffee
The consumer price of coffee jumped about 4 percent over the 12 months ending in March, according to the CPI, but a steep drop in futures over the last three months suggests things are on their way back down again. Volcafe, the coffee division of the Swiss commodities trading firm ED&F Man, raised production forecasts earlier this month and now predicts global demand will exceed supply in the 2015-2016 season. Futures fell again after that report. Rising production will take some price pressure off coffee, although with more Americans switching to espresso-based drinks, the decline could be offset for many consumers by price changes in other ingredients.

coffee eggs Prices California Food Consumer Price Index

http://www.bloomberg.com/news/articles/2015-05-27/volatility-for-breakfast-egg-and-bacon-prices-go-opposite-ways