Friday, April 29, 2011
Food Prices: Some Facts Behind The Rise
Let’s take a survey and ask how many of you are bracing for consumer complaints about higher food costs as a result of higher commodity prices? If you raised your hand you are in the majority. About a month ago that question was posed to 40 farmers gathered for a Cornbelt marketing meeting, and every one raised their hand. Just like every other consumer in your county, you have to pay higher prices also, but they may still get cranky with you the next time they see you.
The evening television news programs and the local newspapers are all carrying headlines about the rising numbers in the Consumer Price Index, which covers a wide range of goods and services including food. USDA’s Economics Research Service (ERS) makes its contribution to the CPI by tallying the changes in the cost of food, both purchased at grocery stores for home consumption and purchased at restaurants and other locations for consumption away from home. ERS said in its recent report on food prices that the level of prices “can be influenced by changes in costs incurred by food system firms. Changes in input costs can translate directly into changes in the CPI or may have little or no effect.” Consequently, higher food costs may be the result of higher commodity prices, labor costs, transportation fuel costs, or a variety of other costs that influence the pricing of food from the wholesaler to the retailer.
For the current year, ERS projects food prices to increase 3% to 4%. The breakdown is a 3.5% to 4.5% increase in grocery store prices and a 3% to 4% increase in restaurant prices. What consumers will not remember is the fact that food price inflation was almost non-existent in 2009 and 2010. In fact, the .8% rise in food prices in 2009 and 2010 was the least since 1962. And for 2010 the 1.3% increase in restaurant prices was the least since 1955. But higher commodity prices and higher energy prices have combined to push food prices upward for the current year.
Beef and pork prices are leading the way, in part from higher market prices. Beef prices rose 2.3% in March and are 12.2% higher than March 2010. Pork prices also went up 2.3% in March and are 11.2% higher than year ago levels. Remind your non-farm friends that one of the main reasons for higher meat prices is the result of reduced production when prices were lower, along with substantial demand from overseas consumers who have a lot of stronger valued money to spend, and want some good steaks and chops. Looking down the rest of the meat case, poultry prices are only 2.2% above 2010 levels at this time of year. Plentiful supplies exist and that is one of the reasons that poultry is a bargain compared to red meats. For the balance of the year, beef prices are expected to climb another 7% to 8% and pork prices are expected to rise another 6.5% to 7.5%.
In the dairy case prices are generally 1.3% higher than March and 3.7% higher than year ago levels. Milk is about 7% higher than 2010, cheese is 2% higher, ice cream is 4% higher than last year, butter is 32% higher than last year. And egg prices have been on a decline and are only 1% above 2010 levels for the month of March. If a consumer complains about higher milk prices, remind them that, “In 2010, dairy prices were up only 1.1% from 2009 (following a 6.4% decline from 2008 to 2009).”
With public relations firms busy trying to explain away the reasons cereal prices of their clients have climbed so high so fast, most of the blame is leveled at farmers. Even though grain prices make up small percentages of the price of the product, those products are still rising in price. Overall cereal and bakery products are up 1.8% from year ago levels. Those prices declined .8% in 2010, but ERS says, “Higher wheat commodity costs should begin to affect cereal and bakery product prices over the next few months, causing prices to rise 3.5 to 4.5% overall in 2011.”
Summary:
The higher commodity prices that have bolstered farm profitability are being felt by consumers, who may be complaining about having to pay higher food prices. For several categories of foods, prices had declined the past several years. In some cases prices are reflecting higher commodity and fuel prices. And in other cases, higher prices for meats in part reflect overseas demand for US beef and pork, with foreign consumers outbidding domestic consumers.
Posted by Stu Ellis on 04/29 at 12:00 AM | Permalink
Comments
Posted by: Jib at April 30, 2011 2:02AM
Some thoughts prior to “Normal Spring” Activities
Wheat prices maybe over done
Ending stocks for 2011-12 marketing year are “guessed” to be within respectable ranges based upon world production for 2011-12 of around 680 million metric tons.
Class Prod Ending End % T Use
HRWW 690 210 25%
HRSW 510 210 39%
SRWW 390 150 33%
Whte 280 100 36%
Drhm 80 50 43%
2011-12 1,950 720 33%
2010-11 2,210 840 34%
Change -260 -120
The return to more “normal” worldwide production should offset the “poor” production of the hard winter wheat by a reduction in export demand. The “wild card” could be in the planting of spring wheat here and in Canada. There is, however, an indication our northern wheat grower can and have planted spring wheat through the month of May. Spring wheat seems to be planted even after the corn planters stop. It is assumed spring wheat requires fewer GDD than corn and therefore has less chance of frost damage.
Soft Red Winter Wheat being fed as substitute for Old Crop Corn
Nine states that are net importers of corn (NC, GA, AL, AR, TN, MS, DE, SC & VA) are projected to use 500 million more bushel from March 1 to October 1 than they had in stocks on March 1. Their domestic soft red winter wheat production is ‘guessed” at 130 million bushels and surrounding states might produce an additional 70 million bushels. These 200 million bushels of wheat if it all were available and of quality (wet weather at flowering/heading increases disease chances; including head scab) to be fed, would still leave these states 300 million bushels short of feed. (The cash price for new and old soft red winter wheat in these states is at or below cash corn bids.) They will import grain from other states, countries or cut production.
CME’s increased storage charge on winter wheat may not have as large of an impact as some believe
When comparing regular capacity for delivery on the futures market from reporting warehouses with their stocks of grain in warehouses declared regular for delivery of the CBOT one finds room for 75 million extra bushels (Now again assuming I understand all that going into these CME reports) in those warehouses that would be “in the flow” of soft red winter wheat. (Wordy, I know but I took it directly off the report as to not miss lead those that totally understand this stuff.) That would be less than 20% of our guess of soft red winter wheat production. It is also unlikely they would “fill up” with wheat and forego their corn and soybean business especially with the tight corn situation.
Two other states might be looking outside their borders for grain
Iowa and Missouri appear to be the next tightest states as far a projected corn use versus March 1 stocks (south western and far western states were not reviewed). The numbers indicate they should have enough corn till harvest. However the spread between Illinois and western Iowa’s corn bids have been narrowing at the ethanol plants. That might be foreshadowing things to come.
Enough of me scratching my head, let’s get to Spring.
Jib aka Gibberish