Food Price Outlook, 2015-2016
This page provides the following information for October 2015:
Consumer Price Index (CPI) for Food (not seasonally adjusted)
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, was unchanged from September to October but is 0.2 percent above the October 2014 level. However, the CPI for all food rose 0.2 percent from September to October and is 1.6 percent above the October 2014 level. The degree of food price inflation varies depending on whether the food was purchased for consumption away from home or at home. In contrast to higher food prices, prices fell by 0.1 percent for housing and by 0.9 percent for transportation from September to October.
- The food-away-from-home (restaurant purchases) CPI was up 0.2 percent in October and is 2.9 percent higher than October 2014; and
- The food-at-home (grocery store or supermarket food items) CPI rose 0.1 percent in October and is 0.7 percent higher than 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 the effects of the drought in the Southwest and California, the retail food price inflation rate in 2014 was 2.4 percent, approaching the 20-year historical average of 2.6 percent per year. While overall food price inflation was close to its 20-year historical average, inflation across food categories covered a broad spectrum. The most notable annual inflation was seen in those foods located on the perimeter of the grocery store—retail beef and veal, pork, eggs, fish and seafood, dairy, and fresh fruit all experienced above-average price increases. Alternatively, items in the center aisles of grocery stores experienced below-average inflation or, in some instances, even deflation. In 2014, prices fell for fresh vegetables, sugars and sweets, and nonalcoholic beverages.
For 2015, ERS predicts that supermarket (food-at-home) prices will see slightly-lower-than-average food price inflation, increasing 1.0 to 2.0 percent. However, food price inflation is expected to vary by category. Beef and veal prices are expected to continue to experience the effects of the Texas/Oklahoma drought. Farmers' decisions on calving and herd sizes will be felt down the line due to the 16- to 18-month production process. Egg prices are expected to rise from 15.0 to 16.0 percent due to the effect of Highly Pathogenic Avian Influenza (HPAI) on table-egg-laying flocks. In contrast, the effects of Porcine Epidemic Diarrhea virus (PEDv) on the hog industry are subsiding, and the hog industry has started to expand in 2015, resulting in a decrease in farm-level hog prices.
Looking ahead to 2016, ERS predicts food-at-home (supermarket) prices to rise 2.0 to 3.0 percent—a rate of inflation that remains in line with the historical average. These forecasts are based on an assumption of normal weather conditions; however, severe weather or other unforeseen events could potentially drive up food prices beyond the current forecasts. In particular, the ongoing drought in California could have large and lasting effects on fruit, vegetable, dairy, and egg prices. Conversely, if oil prices continue to remain low throughout 2015 and 2016, subsequent decreases in production and transportation costs may be passed on to the retail level.
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 decreased an additional 1 percent from September to October but are still 0.9 percent higher than this time last year. U.S. beef exports have declined, helping place downward pressure on retail beef prices by increasing the supply of beef on the U.S. market. Additionally, favorable pasture conditions in some areas and lower feed prices have allowed cattle producers to feed cattle longer and to hold cattle for herd expansion. ERS predicts beef and veal prices will increase 6.5 to 7.5 percent in 2015 and 1.5 to 2.5 percent in 2016.
Prices for poultry increased by 0.5 percent from September to October but are still 0.3 percent lower than last year. Retail chicken price inflation has remained relatively low in 2015 partly due to an increase in broiler production. While broilers have largely been unaffected by HPAI, broiler prices have been affected due to some countries instituting bans or partial bans on U.S. poultry exports. This has resulted in more chicken broilers remaining on the U.S. market which, in turn, places downward pressure on retail chicken prices. Chicken prices rose 0.4 percent from September to October but are 0.8 percent lower than they were at this time last year. However, prices for other poultry, including turkey, were up 1.8 percent from September to October and are 1.9 percent higher than they were at this time last year. ERS forecasts poultry prices to increase 0.5 to 1.5 percent in 2015. Poultry prices are expected to increase an additional 2.5 to 3.5 percent in 2016.
Egg prices decreased 5.1 percent from September to October but are now 30 percent above October 2014 levels. Retail egg prices are among the most volatile retail food prices, as they can be affected by seasonal demand. The recent upswing is primarily due to the HPAI outbreak, which has decreased the table-egg-laying flocks in the Midwest and Pacific Northwest by 11 percent (33 million egg layers). ERS now forecasts egg prices to increase 15.0 to 16.0 percent in 2015 and 0.0 to 1.0 percent in 2016.
In October, prices for dairy products fell, decreasing 0.2 percent from the previous month and remaining 3 percent lower than they were in October 2014. Milk prices have declined year-over-year—down 7.5 percent since October 2014. ERS predicts dairy product prices to change between -0.5 to 0.5 percent in 2015 and 2.0 to 3.0 percent in 2016.
Prices for fresh fruits rose 2.2 percent from September to October but are 1.4 percent lower than in October 2014. Fresh fruit prices are lower year-over-year due, in part, to the supply and price of imports. ERS expects prices for fresh fruit to decrease 2.0 to 1.0 percent in 2015. Fresh vegetable prices also increased in October, rising 1 percent over September levels. Fresh vegetable prices are up 2.3 percent since October 2014, resulting in an expectation for prices to increase 0.5 to 1.5 percent in 2015. This is not to say that the drought has had no impact on fresh produce prices—other factors, such as the strength of the U.S. dollar and low oil prices, have placed downward pressure on retail fruit and vegetable prices.
Prices for sugars and sweets declined an additional 0.7 percent from September to October but are still up 3.5 percent from this time last year. Sugar prices had been low in 2013-14 due to a large supply of sugar on the U.S. market. Higher prices for sugars and sweets in 2015 are primarily the result of relatively fewer supplies and a price floor from a key foreign supplier. ERS now predicts prices for sugars and sweets to rise 2.5 to 3.5 percent in 2015 and 1.5 to 2.5 percent in 2016.
See Changes in Food Price Indexes, 2013 through 2016 .
Key Month-Over-Month Changes in the Food CPI
In October, pork prices rose 0.5 percent from the previous month, but prices have fallen 6.4 percent year-over-year. In 2014, retail pork inflation was largely due to the effects of PEDv, which had reduced the autumn number of hogs ready for production. In 2015, however, hog prices continue to fall below 2014 figures, as there are signs of industry expansion and a lower volume of pork exports due to the strength of the U.S. dollar. ERS predicts pork prices to fall 4.0 to 3.0 percent in 2015. In 2016, pork prices are expected to rise 1.5 to 2.5 percent.
Prices for fats and oils increased 1 percent from September to October but are 1.3 percent lower than last October. The relatively low level of price inflation for fats and oils is primarily due to record-level oilseed production as well as increased import volume. ERS predicts fats and oils prices to change between -0.5 to 0.5 percent in 2015 and to increase 1.5 to 2.5 percent in 2016.
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 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 2.7 percent from September to October. Prices for intermediate foods and feeds also fell in October, decreasing 1.1 percent. Additionally, prices for finished consumer foods decreased in October by 1.3 percent from the previous month. The recent price decreases for commodities and foods at earlier stages of the food supply chain suggest that food prices at the retail level could face downward pressure in the coming months.
Inflation rates for farm-level cattle and wholesale beef prices were high in 2014, as U.S. cattle herd sizes remain near historically low levels. Inflationary pressures have lessened, however, and farm-level cattle prices have started to deflate in the second half of 2015. In October, cattle prices decreased an additional 4.1 percent and are down 18 percent since this time last year. Wholesale beef prices also fell, dropping 6.2 percent on the month, and are now down 10.6 percent from the previous year. One reason for the recent price decline was the larger inventories of heavy cattle that were "over-finished." However, these inventories seem to be declining, and prices could increase in the coming months. In 2015, ERS predicts farm-level cattle prices to rise 0.0 to 1.0 percent and wholesale beef prices to increase by 4.0 to 5.0 percent.
Wholesale pork prices increased 1.5 percent from September to October; prices are now down 26.2 percent since this time last year, as the effects of PEDv are subsiding. Overall, pork production is higher, as litter sizes and hog inventories have recovered. ERS predicts that wholesale pork prices will decrease 24.0 to 23.0 percent in 2015 but rise 1.5 to 2.5 percent in 2016.
Prices for farm-level eggs decreased 27.4 percent from September to October, but prices are still up 24.2 percent from October 2014 levels. Egg prices are among the most volatile of food prices, typically peaking in the fourth quarter of the year and then falling in the first quarter of the new year. Prices have also been affected by HPAI, which has reduced the count of table-egg-laying birds in many Midwestern and Pacific Northwestern States. However, the recent price decrease at the farm level indicates that retail egg prices could continue to rise over the next several months. ERS forecasts farm-level egg prices to increase 28.0 to 29.0 percent in 2015 and 5.0 to 6.0 percent in 2016.
Farm-level soybean prices increased 1.1 percent from September to October but are still 6.8 percent below the October 2014 price level. Wholesale fats and oils prices decreased on the month, falling 1.5 percent in October, and are now 4.4 percent lower than October 2014 price levels. ERS predicts farm-level soybean prices to fall 18.0 to 17.0 percent in 2015. Prices for wholesale fats and oils are expected to decrease 5.0 to 4.0 percent in 2015.
The ongoing drought in California has raised concerns about rising produce prices at supermarkets or grocery stores. Prices for farm-level fruits rose, while prices for farm-level vegetables fell in October. Farm-level fruit prices increased 5.0 percent in October, and farm-level vegetable prices decreased 1.7 percent. ERS predicts farm-level fruit prices to decrease between 3.0 and 2.0 percent and vegetable prices to change between -0.5 to 0.5 percent in 2015. Prices are expected to rise in 2016—fresh fruits by 1.5 to 2.5 percent and fresh vegetables by 1.0 to 2.0 percent.
See Changes in Producer Price Indexes, 2013 through 2016 .