Food Price Outlook, 2014-15
This page provides the following information for October 2014:
Consumer Price Index (CPI) for Food (not seasonally adjusted)
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, fell 0.3 percent from September to October and is 1.7 percent above the October 2013 level. The CPI for all food rose 0.2 percent from September to October and is now 3.1 percent above the October 2013 level.
- The food-at-home (grocery store or supermarket food items) CPI was up 0.2 percent in October and is 3.3 percent higher than last October. The food-at-home CPI increased 0.9 percent in 2013—one of the smallest year-over-year increases in decades; and
- The food-away-from-home (restaurant purchases) CPI increased 0.2 percent in October and is up 2.8 percent from last October.
ERS revises its food price forecasts if the conditions (such as the feed grain crop outlook or weather-related crop conditions) on which they are based change significantly. Despite lingering commodity price effects from the severe 2012 drought in the Midwest, retail food prices were relatively flat in 2013. Prices for several agricultural commodities, particularly sugar and coffee, decreased in 2013. Fuel prices were moderate, and exports decreased for several major U.S. commodities. Relative to 2012, prices rose considerably for poultry, eggs, fish, and fresh vegetables; however, prices fell for nonalcoholic beverages, sugar and sweets, fats and oils, and other meats. For the remaining food categories, prices were mostly unchanged.
In 2014, ERS forecasts that food price inflation will return to a range closer to the historical norm; over the past 20 years, grocery store prices have risen by an average of 2.6 percent per year. The food-at-home CPI has increased more in the first 6 months of 2014 than it did in all of 2013; however, given its current trajectory, it is on track for normal annual inflation. Inflationary pressures are expected to be moderate, given the outlook for commodity prices, animal inventories, and ongoing export trends. Retailer margins, having contracted since the 2012 drought, may expand in 2014 if input prices rise, which should contribute to inflation. As a result, the food, food-at-home, and food-away-from-home CPIs are expected to increase 2.5 to 3.5 percent over 2013 levels.
Looking ahead to 2015, ERS predicts that supermarket (food-at-home) prices will see normal to slightly lower than average food price inflation, increasing 2.0 to 3.0 percent. Meat prices will likely continue to experience the effects of the Texas/Oklahoma drought and Porcine Epidemic Diarrhea virus (PEDv) in the immediate future, as farmers' decisions on calving and herd sizes based on current conditions are felt down the line due to the 6- to 18-month production process. This forecast is based on an assumption of normal weather conditions; however, severe weather events could potentially drive up food prices beyond the current forecasts. In particular, the ongoing drought in California could potentially have large and lasting effects on fruit, vegetable, dairy, and egg prices, and drought conditions in Texas and Oklahoma could drive beef prices up even further.
Changes to Food Category CPI Forecasts
The food-at-home CPI is an average of individual food CPIs, weighted by their relative importance or share of consumer expenditures.
Beef and veal prices continued to rise, increasing 0.3 percent from September to October and 17.8 percent year-over-year. Prices remain high, as the U.S. cattle inventory is currently at a historical low. Pasture conditions have improved somewhat in the Southern Plains and Southwest but not significantly in the West. Improved crop yields have allowed cattle producers to feed cattle longer and to hold cattle for expansion. However, signs of herd expansion are anecdotal at best. Most retail beef prices, on average, are at record highs, even after adjusting for inflation. ERS now predicts beef and veal prices will increase 11.0 to 12.0 percent in 2014 and 4.5 to 5.5 percent in 2015. As a result of higher beef prices, meats are now expected to rise 7.5 to 8.5 percent in 2014 and meats, poultry, and fish 5.5 to 6.5 percent over the same time period.
Pork prices fell in October, decreasing 0.8 percent from the previous month. However, pork prices are now up 9.8 percent from last year. Retail pork inflation is largely due to the effects of PEDv which has reduced the autumn number of hogs ready for production. However, there are some signs of industry expansion, and 2015 hog prices are expected to fall 15 percent below 2014 figures. ERS predicts pork prices to rise 7.5 to 8.5 percent in 2014 and 4.5 to 5.5 percent in 2015.
Sugar and sweets prices fell 1 percent from September to October and are down 0.5 percent year-over-year. The recent decline in prices is due, in part, to an increase in U.S. sugar production as well as an increase in imports, particularly from Mexico. ERS now predicts sugar and sweets prices to change -0.5 to 0.5 percent in 2014 and 1.5 to 2.5 percent in 2015.
See Changes in Food Price Indexes, 2012 through 2015 .
Key Month-Over-Month Changes in the Food CPI
Prices for poultry fell 0.9 percent from September to October and are down 0.1 percent year-over year. In particular, October prices for other poultry including turkey fell 1.5 percent since September and are down 0.2 percent year-over-year. Partially due to an increase in production, retail poultry price inflation has remained below the 20-year historical average of 2.7 percent. ERS now predicts poultry prices to increase 2.0 to 3.0 percent in 2014 and 2.5 to 3.5 percent in 2015.
The prices of dairy products increased 0.5 percent from September to October and are 5.6 percent above October 2013 prices. Exports have recently fallen, as imports have started to move upward and world dairy prices have fallen below domestic prices. Demand for cheese and other dairy-related products remains high, supporting these higher prices. Cheese prices increased 1.3 percent from September to October and are up 8.9 percent year-over-year. Cheese supplies remain tight; however, lower feed prices currently favor dairy expansion. ERS predicts dairy prices to increase 3.0 to 4.0 percent in 2014 and 2.5 to 3.5 percent in 2015.
Prices for fats and oils rose 0.4 percent in October and are now 2.1 percent higher than last October. The increase in fats and oils is primarily due to rising butter prices which increased 4.5 percent in October and are up 29.8 percent since last year. The supply of butter has been tight as stocks declined sharply in 2014. In October, however, butter prices fell at the commodity level, signaling the possibility for lower retail prices in the near future. ERS predicts fats and oils prices to increase 0.0 to 1.0 percent in 2014.
While ongoing drought conditions in California are of concern, a warm winter and a spring hailstorm have affected California’s fruit production in 2014. Frigid winter temperatures mostly affected fruit crops in the eastern half of the country. Fresh fruit prices rose 1.9 percent in October and are up 6.6 percent since October 2013. The increase in fresh fruit prices was primarily driven by an increase in the other fresh fruits category which rose 6.5 percent from September to October. For the most part, a higher price for other fresh fruit reflects recent increases in prices for strawberries and grapes. Fresh vegetable prices also increased in October, rising 1.7 percent; however, prices are down 2.6 percent since October 2013. ERS expects prices for fresh fruit to increase 4.5 to 5.5 percent in 2014 and 2.5 to 3.5 percent in 2015. Fresh vegetable prices are expected to increase 2.0 to 3.0 percent in 2014 and 2015.
Producer Price Index (PPI) for Food (not seasonally adjusted)
The Producer Price Index (PPI) is similar to the CPI in that it measures price changes over time; however, instead of measuring changes in retail prices, the PPI measures the average change in prices paid to domestic producers for their output. The PPI collects data for nearly every industry in the goods-producing sector of the economy. Of particular interest to food markets are three major PPI commodity groups—crude foodstuffs and feedstuffs, intermediate foods and feeds, and finished consumer foods. These groups give a general sense of price movements across the various stages of production in the U.S. food supply chain.
The stage-of-processing PPIs—measures of changes in farm and wholesale prices—are typically far more volatile than their counterparts in the CPI. Price volatility decreases as products move from the farm to the wholesale sector to the retail sector. Due to multiple stages of processing in U.S. food supply systems, the CPI typically lags movements in the PPI. Examining the PPI is thus a useful tool in understanding what may happen to the CPI in the near future.
ERS does not currently forecast industry-level PPIs for crude, intermediate, and finished foods and feeds, but these have historically shown a strong correlation with the all-food and food-at-home CPIs. Crude foods and feeds posted a monthly decrease of 0.2 percent from September to October. From February to April, this category experienced the largest monthly increase since 1980, and therefore, prices are currently high. Intermediate foods and feeds decreased 2.1 percent in October, and finished consumer foods rose 1 percent.
Inflation rates for farm-level cattle and wholesale beef have remained high in 2014, as U.S. cattle herd sizes remain low. In October, cattle prices increased 0.6 percent and are now up 25.1 percent since this time last year. Wholesale beef prices increased, rising 2.1 percent on the month and are now up 27.4 percent year-over-year. ERS predicts farm-level cattle prices to increase in 2014 by 21.5 to 22.5 percent and wholesale beef prices to increase by 17.5 to 18.5 percent over the same time period. If pasture and water conditions continue to improve in the western half of the United States, herd expansion could be expected in the future. However, increases in beef production require time, as it takes roughly 16 to 18 months from birth until cattle are ready for market.
Wholesale pork prices rose in October, increasing 6.8 percent since September; wholesale pork prices are up 24.0 percent since this time last year. ERS predicts that wholesale pork prices will increase 20.0 to 21.0 percent in 2014.
Farm-level milk prices rose 1.2 percent in October and are now 22.2 percent higher year-over-year. While feed prices have become less expensive and dairy cows are now producing more milk, high demand for milk and related dairy products has driven up prices in the first half of 2014. Looking ahead to 2015, low feed prices may promote dairy expansion, increasing the supply of milk and other dairy-related items. ERS now predicts that farm-level milk prices will increase 19.0 to 20.0 percent and wholesale dairy will increase 10.0 to 11.0 percent in 2014.
Farm-level soybean prices have declined in recent months, falling 9.3 percent from September to October. Soybean prices are now 26.1 percent below the October 2013 level. Contributing to these lower soybean prices are the current record-high oilseed production levels. ERS now predicts farm-level soybean prices to fall 10.0 to 11.0 percent in 2014.
The ongoing drought in California has raised concerns about rising produce prices at supermarkets or grocery stores. Farm-level fruit prices rose 2.7 percent in October, while farm vegetable prices increased 8.6 percent. These changes suggest that retail produce prices could continue to increase in the coming months. ERS predicts farm-level fruit prices will increase 3.0 to 4.0 percent in 2014 and farm-level vegetables will decrease 3.0 to 4.0 percent over the same time period.
See Changes in Producer Price Indexes, 2012 through 2015 .