Food Price Outlook, 2015
This page provides the following information for December 2014:
Consumer Price Index (CPI) for Food (not seasonally adjusted)
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, fell 0.6 percent from November to December and is 0.8 percent above the December 2013 level. The CPI for all food increased 0.3 percent from November to December and is now 3.4 percent above the December 2013 level.
- The food-away-from-home (restaurant purchases) CPI increased 0.3 percent in December and is 3 percent higher year-over-year; and
- The food-at-home (grocery store or supermarket food items) CPI was up 0.4 percent in December and is 3.7 percent higher than last December.
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 2014 drought in the Southwest and California, retail food price inflation rates approached the historical average of 2.6 percent per year. In 2014, the food-at-home CPI increased 2.4 percent. The most notable annual inflation increases were seen in the perimeter of the grocery store—retail beef and veal, pork, eggs, fish and seafood, dairy, and fresh fruit 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. While overall food price inflation was average, inflation across food categories covered a broad spectrum.
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 have large and lasting effects on fruit, vegetable, dairy, and egg prices. Conversely, if oil prices continue to fall or remain low throughout 2015, 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 continued to rise, increasing 0.7 percent from November to December and 18.7 percent year-over-year. Prices remain high, as the U.S. cattle inventory is currently at a historical low. While recent rains in the Southern Plains and Southwest have improved pasture conditions somewhat, the drought still continues in these regions. In addition, improved crop yields allow cattle producers to feed cattle longer and to hold cattle for expansion. Many producers are holding on to their inventory to increase live weights, as steer and heifer prices have hit record highs. Most retail beef prices, on average, are also at record highs, even after adjusting for inflation. ERS predicts beef and veal prices will increase 5.0 to 6.0 percent in 2015.
Pork prices fell again in December, decreasing 1.7 percent from the previous month. However, pork prices are now up 8.2 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 as the effects of PEDv have been subsiding. Hog prices in 2015 are expected to fall 17.8 percent below 2014 figures. ERS predicts pork prices to rise 2.0 to 3.0 percent in 2015.
Egg prices increased 7.7 percent from November to December and are now 10.7 percent above December 2013 levels. Retail egg prices are among the most volatile retail food prices. Additionally, prices typically spike in the fourth quarter of the year, with increased demand for eggs in holiday baking. There is also concern that the new law affecting eggs sold in California (Proposition 2) will affect retail egg prices across the country. While this may cause higher prices in California, prices elsewhere may face downward pressure if out-of-State egg producers choose not to alter their facilities and look elsewhere within the U.S. to sell their eggs. ERS expects egg prices to increase 2.5 to 3.5 percent in 2015.
Prices for fats and oils dropped 0.4 percent from November to December and are now 1 percent higher than last December. The decrease in the price for fats and oils is primarily due to record-level oilseed production. ERS predicts fats and oils prices to increase 0.0 to 1.0 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 0.5 percent from November to December and are up 1.6 percent year-over year. Partly due to an increase in production, retail poultry price inflation has remained below the 20-year historical average of 2.6 percent. ERS predicts poultry price inflation to continue near the historical average in 2015 and forecasts poultry prices to increase 2.5 to 3.5 percent in 2015.
The prices of dairy products increased 0.6 percent from November to December and are 5.3 percent above December 2013 prices. With higher beginning stocks of wholesale cheese and milk, 2015 prices are expected to fall at the farm and wholesale level, placing downward pressure on retail dairy prices. Lower feed prices also favor dairy expansion. ERS predicts dairy prices to increase 2.5 to 3.5 percent in 2015.
While the California drought is a concern, other weather conditions, such as a warm winter and a spring hailstorm, affected California’s fruit production in 2014. Frigid winter temperatures mostly affected fruit crops in the eastern half of the country. Fresh fruit prices fell 0.1 percent from November to December and are up 3.6 percent since December 2013. The decrease in fresh fruit prices was primarily driven by a 5.9-percent drop in the price for fresh citrus from November to December. Lower citrus prices reflect smaller fruit sizes and lower quality. ERS expects prices for fresh fruit to increase 2.5 to 3.5 percent in 2015. Fresh vegetable prices increased again in December, rising 2.8 percent; prices are up 4.6 percent since December 2013. Fresh vegetable prices are expected to increase 2.0 to 3.0 percent in 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 6.8 percent from November to December. Inflation for intermediate foods and feeds fell in December, declining 1 percent, and inflation for finished consumer foods declined by 0.3 percent. The recent decline of commodities and foods at earlier stages of production suggests that food prices at the retail level could come down in the coming months.
Inflation rates for farm-level cattle and wholesale beef have remained high in 2014, as U.S. cattle herd sizes remain low. In December, cattle prices decreased 2.9 percent but are still up 26.3 percent since this time last year. Wholesale beef prices increased, rising 0.1 percent on the month, and are now up 24.3 percent year-over-year. ERS predicts farm-level cattle prices to increase in 2015 by 4.0 to 5.0 percent and wholesale beef prices to increase by 5.0 to 6.0 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 continued to fall in December, decreasing 4.8 percent since November; wholesale pork prices are up 8.4 percent since this time last year. ERS now predicts that wholesale pork prices will increase 0.0 to 1.0 percent in 2015, as the effects of PEDv are subsiding.
The price for farm-level eggs increased 36.9 percent from November to December; prices are now 25.9 percent higher than December 2013 levels. As consumers demand more eggs for holiday baking, egg prices typically peak in the fourth quarter of the year. ERS now forecasts farm-level egg prices to increase 5.0 to 6.0 percent in 2015.
Farm-level milk prices fell 13.2 percent in December and are 7.7 percent below December 2013 prices. Looking ahead in 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 decrease 9.0 to 10.0 percent in 2015. Wholesale dairy is also likely to decrease by 5.0 to 6.0 percent in 2015.
Although farm-level soybean prices have declined in recent months, they increased 1.3 percent from November to December. Soybean prices are now 21.9 percent below the December 2013 level. Current record-high oilseed production levels have contributed to lower soybean prices. Wholesale fats and oils prices fell 0.5 percent in December and are 4.8 percent lower than December 2013 levels. ERS predicts farm-level soybean prices to fall 4.0 to 3.0 in 2015. Wholesale fats and oils are expected to increase 1.0 to 2.0 percent in 2015.
The ongoing drought in California has raised concerns about rising produce prices at supermarkets or grocery stores. Farm-level fruit prices rose 6.6 percent in December, while farm vegetable prices fell 5 percent. ERS predicts both farm-level fruit and vegetable prices to increase 0.0 to 1.0 percent in 2015.
See Changes in Producer Price Indexes, 2012 through 2015 .