Stabilizing food prices in November

Although meat prices are expected to inch higher next year, signs of stability surfaced in the USDA Food Price Outlook report.

 

From October to November, the Consumer Price Index (CPI) remained unchanged and now stands at 3.2% higher than November 2013, according to the U.S. Dept. of Agriculture’s Economic Research Service (ERS).

Overall, prices for food purchased in grocery store dropped 0.2% in November from the previous month however still 3.4% above a year ago.  On the other hand, the food-away-from-home CPI climbed 0.4% in November and is up 2.9% from last November.

Meanwhile, the ERS adjusted its food price forecasts to reflect the feed, grain and crop outlook.  Food prices, food-at-home and food-away-from-home at the end of 2014 are predicted to increase 2.25-3.25% over 2013 levels with meat prices registering the largest gain.   

Looking ahead to 2015, the ERS forecasts supermarket prices to stabilize and drop slightly lower than average food price inflation, increasing only 2.0-3.0%. Nevertheless, meats prices will still remain higher in the short-term due to the effects of the Texas/Oklahoma drought and Porcine Epidemic Diarrhea virus (PEDv) and 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.

Changes to Food Category CPI Forecasts

Carving deeper into the individual food categories, pork prices dropped again in November, down 2.1% from the previous month.  Still, pork prices for the year are up 9.9% from 2013. With signs of the pork industry expanding, the 2015 pork prices are projected by the ERS to increase only 4.5-5.5% next year, compared to 8.35-9.25% this year.

Poultry prices in November only rose 0.7% from October and up 2.5% year-over-year, as production in the last half of the year increased.  The ERS is now predicting poultry prices to increase 1.5% to 2.5% in 2014 and up 2.5-3.5% next year.

As for Egg, prices are now 6.2% higher than November 2013 level and increased 2.8% last month.  The monthly increase was a result in greater number of eggs being broken and increase of egg exports. For 2014, the ERS expects egg prices to have a yearly increase of 7-8% but only advance 1-2% next year.

Beef and veal prices showed the largest year-over-year increase, climbing 18.1% from November 2013. Most retail beef prices, on average, are also at record highs, even after adjusting for inflation, stated the ERS. Prices are forecasted to remain high as the U.S. cattle inventory recovers from its historical lows. Therefore, the ERS predicts beef and veal prices will increase 11-12% this year and 4.5-5.5% the following year.

In contrast, dairy products actually declined 0.2% from October to November and prices are now 5% above November 2013 levels. Global dairy prices have now fallen below domestic prices which has hinder U.S. dairy exports.  Still, dairy producers are benefitting from affordable feed prices. As it stands, the ERS projects dairy prices to climb 3-4% in 2014 but only increase 2.5-3.5% next year.

Producer Price Index (PPI) for Food

The ERS also measures the average change in prices paid to domestic producers for their output or Producer Price Index (PPI), which is more volatile than CPI.

From October to November, crude foods and feeds posted a monthly increase of 1.1% and this category from February to April experienced the largest monthly increase since 1980, which boosted prices to the current highs. In addition, intermediate foods and feeds fell 0.5% in November, and finished consumer foods declined 0.3%.

As the U.S. cattle inventory remains low, inflation rates for farm-level cattle and wholesale beef have remained high in 2014.

Cattle prices in November climbed 3.3% pushing the year-over-year gain 30.1% over this time last year. For the year, wholesale beef prices rose 28.6% from 2013. Farm level cattle prices are expected to increase, overall, 21.5-22.5% in 2014 and 17.5-18.5% in 2014, stated ERS.

As wholesale pork prices decrease 8.9% in November, the prices are only up 9.3% from November 2013. ERS predicts that wholesale pork prices will increase 20-21% this year and 4-5% next year.

Increased egg exports have assisted farm-level egg prices to 2.7% over last year’s level.  At the end of 2014, the ERS estimates farm-level egg prices to increase 13.5-14.5%.

In November, farm-level milk prices fell 7.5% however still 8.3% higher year-over-year. ERS now estimates that farm-level milk prices will increase 20.75-21.75% for 2014 but only increase 0-1% percent in 2015 while wholesale dairy prices are expected to increase 10-11% this year and 1-2% next year.

Although farm-level soybean prices have declined in recent months, they increased 6.9% from October to November and are now 22.5% below the November 2013 level. Contributing to these lower soybean prices are the current record-high oilseed production levels. Wholesale fats and oils prices fell 5.8% below November 2013 levels. ERS now predicts farm-level soybean prices to fall 10-11% in 2014 and drop 3-4% in 2015. Wholesale fats and oils are now expected to decrease 6-5% in 2014 and increase 1-2% in 2015.

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