FarmPolicy

USDA- Economic Research Service Update on Food Inflation

Ron Nixon reported today at The New York Times Online that, “The Agriculture Department said Friday that consumers can still expect higher food prices next year, but the expected increase was unchanged from last month, even as extreme heat in the Farm Belt continues to reduce the grain harvest and increase feed prices for livestock.

“According to the latest Agriculture Department consumer food price index, overall food prices are expected to increase 3 to 4 percent next year largely because of the drought, the same as last month’s forecast.

“‘The data out this morning shows that nothing much has changed,’ said Ephraim Leibtag, deputy director of research at the Economic Research Service at the Agriculture Department. The price of beef and veal will see the largest increases next year, the report said, almost entirely because of higher costs for feed, which is made from corn and other grains. Beef and veal prices are expected to increase 4 percent to 5 percent.The most immediate impact of the drought will be seen in poultry prices, the government predicted.”

Mr. Nixon added that, “Ironically, the Agriculture Department said the reduction in the number of cows could result in a temporary decline in beef prices this year as a surplus of cattle is sold and more meat enters the market.”

“A government estimate released earlier this month said that because of worsening drought conditions, farmers would produce about 10.6 billion bushels of corn this year, down from what was projected at the beginning of the year to be a record 15 billion bushels. The reduction in corn and soybean supplies has pushed up their prices to record levels,” The Times noted.

Click on the summary table below for an expanded view of the updated ERS data:

Meanwhile, Bloomberg writer Alan Bjerga reported last night that, “U.S. consumers, already paying more for food due to the worst drought in five decades, may soon see prices at the supermarket rise further because of fuel costs.

“‘Gasoline is the wild card’ of food inflation, said Chad Hart, an economist at Iowa State University. ‘Anytime you have oil and gas prices moving up, that will hit us on the food dollar.’

“Energy and transportation accounts for about 8.2 cents of each dollar spent on food, compared with about 4 cents for farm commodities, according to the U.S. Department of Agriculture. Processing, labor, packaging and other costs dominate the retail and restaurant prices of food, making the cost of corn less important to consumers than the price of the gas needed to transport it, according to USDA data.”

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Posted by Keith Good • August, 24, 2012 • 10:35 am