Consumer food prices are still rising rapidly

Consumer prices for food are still rising rapidly

Growth in the consumer price index (a key measure of inflation) is now well off its peak, but it’s still being pulled up by food inflation, which has had a much slower descent from its peak and remains in double digits. As of January, food costs within the CPI had climbed 10.1 percent over the past year, while inflation for food at home (purchased by consumers at grocery stores) was up 11.3 percent.

Most categories of food at home have experienced significant price growth, but some are still growing by more than 15 percent. Many of those categories posting the highest inflation use wheat and other grains, of which Russia and/or Ukraine account for a significant portion of global exports. Note, for example, inflation figures on the above chart for bakery products, rice, pasta, and cornmeal, breakfast cereals, flour and prepared flour mixes, processed fruits and vegetables, and fats and oils. Each of these categories includes in some way wheat, corn, or sunflower oil, which are all among the largest sourced from the war-torn region. Food inflation is certainly multifactorial and food prices were already on the rise before the Russia-Ukraine conflict started, but the war significantly boosted and prolonged inflationary pressures.

Some dairy products are also seeing especially high price growth. Like the foods mentioned above, some of that is related to smaller global supplies of corn, which is used in cow feed and to sweeten most commonly available ice cream brands. But high labor and transportation costs are also contributing, making the process of getting milk from the farm to market more expensive at every step along the way.

Soaring egg prices have gathered much attention and lead the price growth chart, still up by 70 percent annually as of January. Lingering impacts from the avian flu which killed millions of birds globally over 2022 continue to drive up costs for consumers, although prices have started to ease in recent months.

Red meat is the lone category which has seen low inflation or (in the case of beef) modest deflation in recent months. Higher production resulted in more supply of beef for consumers and lower prices. However, long-standing droughts have left grazing areas smaller and in worse condition, with many cattle ranchers culling more herds.  As such with U.S. cattle herds now at the smallest levels in decades, beef prices are projected to move higher over the next year.

Ag News Highlights

California has had cold, wet winter

Early predictions of a warm and dry winter in the West proved inaccurate. The wet season got off to a fast start and, after a brief pause, continued in mid-February as snowstorms and arctic air in California put the area on pace for significant snowpack measurements at the end of the season. According to California’s Department of Water Resources, water content of the Sierra Nevada snowpack, which provides roughly one-third of California’s water, is 170 percent of the historical average for April 1, when it is typically at its peak.

Due to the very wet winter, nearly 17 percent of California is free from any abnormal dryness, an astonishing shift after several years of intense drought readings. Additionally, there is little California land with severe drought, and none experiencing extreme or exceptional droughts.

Size of beef cow herd shrinks to 61-year low

Last month’s semiannual Cattle Report from the USDA showed the toll droughts have taken on the size of the U.S. cow herd, and particularly on beef cows. The 28.9 million head of beef cows on January 1, 2023, was four percent lower than a year prior and was the lowest total in 61 years. Kevin Good, vice president of industry relations and analysis with CattleFax, believes the herd will contract further this year, amounting to a five percent drop in production compared to last year. Ultimately, this is expected to lead to solid gains in 2023 for prices received for beef cattle.

USTR starts trade dispute process with Mexico

Last month, it was pointed out in this space that the office of the United States Trade Representative (USTR) had a path outlined in the USMCA for trade disputes should the Mexican ban on GMO corn require a formal dispute. In early March, the USTR requested a consultation with the Mexican government, officially starting this process.

If consultations do not yield a remedy, a panel will be established to examine evidence and hear oral testimony from both sides, then render a verdict on which party is in violation of the USMCA. USDA secretary Tom Vilsack is confident in a positive outcome for the U.S., saying, “We remain firm in our view that Mexico’s current biotechnology trajectory is not grounded in science, which is the foundation of the USMCA.”