Food Price Outlook, 2014-15
This page provides the following information for August 2014:
Consumer Price Index (CPI) for Food (not seasonally adjusted)
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, fell 0.2 percent from July to August and is 1.7 percent above the August 2013 level. The CPI for all food rose 0.3 percent from July to August and is now 2.7 percent above the August 2013 level.
- The food-at-home (grocery store or supermarket food items) CPI was up 0.4 percent in August and is 2.9 percent higher than last August. The food-at-home CPI increased 0.9 percent from 2012 to 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 August and is up 2.5 percent from last August.
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 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.
Pork prices remained high in August, increasing 2.1 percent from the previous month; pork prices are also up 11.7 percent from a year ago. The increase in pork is partially due to PEDv, as well as a higher cost of pork imports from European producers. However, the weights of slaughtered hogs have increased in 2014, slightly offsetting smaller herd sizes. ERS now predicts pork prices to rise 7.5 to 8.5 percent in 2014 and 3.0 to 4.0 percent in 2015.
Beef and veal prices continued to rise, increasing 4.2 percent from July to August, the largest month-over-month increase since the end of 2003. Beef and veal prices are up 15.1 percent year-over-year. Prices remain high, as the U.S. cattle inventory continued to decrease in recent months and is currently at its lowest level since 1951. Pasture conditions have started to improve in the West; however, there are not yet any signs of herd expansion. Most retail beef prices, on average, are at record highs, even after adjusting for inflation. ERS now predicts beef and veal prices will increase 8.0 to 9.0 percent in 2014. As a result of higher pork as well as beef and veal price inflation, ERS has also increased its 2014 estimates for the meats, poultry, and fish category to 5.0 to 6.0 percent, and for the meats category to 6.0 to 7.0 percent.
The ongoing drought conditions in California have raised concern over rising produce prices. However, the California drought has not yet had a discernible impact on national prices for fresh fruits or vegetables. Fresh fruit prices fell 0.4 percent in August but remain up 4.6 percent since August 2013. Fresh vegetable prices also declined in August, dropping 1.6 percent; prices are down 4.3 percent since August 2013. The August decline in prices for fresh produce was primarily the result of seasonality. The summer months bring warmer weather throughout the country, which means that more fruits and vegetables are probably being sourced from locations close to final consumers. Locally sourced foods are often less expensive due to lower transportation costs. ERS now 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.
Prices for fats and oils rose 0.4 percent in August and are now 1.1 percent higher than last August. The increase in fats and oils is primarily due to rising butter prices. Butter increased 2.4 percent in August and is up 18.8 percent since last year. The supply of butter is tight as stocks have declined sharply in 2014. However, butter stores are expected to be rebuilt toward the end of 2014, hopefully easing recent high prices in supermarkets. Despite higher butter prices, other fats and oils derived from soybeans have seen price declines this past month and year over year, as farm-level soybean prices have been declining. For this reason, ERS now predicts fats and oils to increase 0.0 to 1.0 percent in 2014.
See Changes in Food Price Indexes, 2012 through 2015 .
Key Month-Over-Month Changes in the Food CPI
Egg prices increased 0.8 percent in August and are up 9.7 percent year-over-year. Egg supplies in the United States are up, as the number of hens laying eggs has increased while the number of egg and egg-product exports has declined. ERS predicts egg prices to rise 5.0 to 6.0 percent in 2014 and 1.0 to 2.0 percent in 2015.
The prices of dairy products increased 0.6 percent from July to August and are 4.4 percent above August 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. Cheese prices rose 0.7 percent from July to August and are up 7 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.
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 4.2 percent from July to August. However, from February to April, this category experienced the largest monthly increase since 1980, and therefore, prices are currently high. Intermediate foods and feeds decreased 0.6 percent in August, and finished consumer foods were flat. Taken together, these price changes suggest that retail food price inflation may decelerate 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 August, however, cattle prices declined 0.5 percent but are still up 25.7 percent since this time last year. Wholesale beef prices also saw decreases, falling 0.3 percent on the month, but wholesale beef prices are up 28.6 percent year-over-year. ERS now predicts farm-level cattle prices to increase in 2014 by 16.0 to 17.0 percent and wholesale beef prices to increase by 13.0 to 14.0 percent over the same time period. If pasture and water conditions continue to improve in the West, herd expansion would be expected toward the end of the year, which would exert downward pressure on cattle prices.
Wholesale pork prices also declined, falling 0.9 percent in August and are up 25.8 percent since this time last year. Hog prices are rising as U.S. supplies decrease due to smaller litter rates caused by the PEDv. ERS predicts that wholesale pork prices will increase 15.5 to 16.5 percent in 2014.
Farm-level milk prices rose 1.3 percent in August and are now 21.5 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. ERS predicts that farm-level milk prices will increase 11.0 to 12.0 percent and wholesale dairy will increase 9.5 to 10.5 percent in 2014.
The ongoing drought in California has raised concerns about rising produce prices at supermarkets or grocery stores. Farm-level fruit prices fell 0.2 percent in August, while farm vegetable prices increased 0.4 percent. These changes suggest that retail produce prices could continue to decline 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 .