One trip through the supermarket reminds you what everyone has known for months. Food prices are getting higher by the day. What some may wonder however is whether prices will continue their brisk uptrend.
Reading between the lines of two reports released by the USDA this week leads me to expect food prices will continue surging higher. Reaction to USDA’s World Agricultural Supply and Demand Estimates Report, and monthly Crop Report, sent futures for many U.S. commodities sharply higher Thursday.
Food expenditures by U.S. families and individuals as a share of disposable income are currently at 11.4 percent, according to USDA. While the number is among the lowest for any country in the world, Americans should prepare for the fact that it will rise in the months and years ahead.
For all of 2011, U.S. food prices are expected to rise a relatively modest 3 percent to 4 percent, according to USDA. However, price forecasts for U.S. agricultural commodities in the two reports suggest that food prices may continue to rise at an even faster clip.
According to the WASDE report, the 2011/2012 season-average farm price for corn is set at $6.20 to $7.20 per bushel, up 70 cents on each end of the projected price range. Yield for the 2011 corn crop is forecast at 153 bushels per acre, down 5.7 bushels from last month’s projection.
The projection for all wheat production, at 2.08 billion bushels, is down 6 percent from last year. Production of durum, widely sought by pasta makers worldwide, is projected down 47 percent from 2010 levels due to flooding and excessively wet conditions earlier this year.
The season-average farm price for all wheat is projected at $7.00 to $8.20 per bushel, up from last month’s range of $6.60 to $8.00 per bushel.
For 2012, the report also reduces its production estimate of beef, pork, broilers and eggs, mostly due to higher feed prices. Lower production in these basic foods will add upward momentum to Americans’ food bill. Milk is one possible exception with the production forecast increased, reflecting higher dairy cow numbers in the first part of 2012.
The outlook for soybeans is also disappointing. Hot and dry conditions across much of the country are hampering production which is expected to fall 8 percent from last year.
With production unable to keep pace with growing domestic and export demand, higher prices for commodities will be passed on to consumers in the form of higher food prices. In addition, higher borrowing costs as a result of the recent downgrade of U.S. debt by Standard and Poor’s will also add to food inflation as manufacturers will pass increased costs along to consumers.
The weather for the 2011 growing season has dealt a serious blow to crop production in the nation’s midsection. July’s Midwest heat wave and ongoing drought conditions in Texas, Oklahoma and parts of Kansas have devastated many agricultural areas reducing expected yields. In addition, record-breaking floods have devastated prime agricultural acres along the Missouri and Mississippi Rivers.
Adding to the upward pressure on corn price, and food prices in general, is the relentless demand from federal mandated ethanol production. While many variables contribute to the price of any food item, the soaring cost of corn due to ethanol production is a major factor that is driving up not only meat and poultry prices, but other food prices as well.
While there is little if anything we can do to change the weather, we could pull back from pursuing an energy policy that consumes 40 percent of our corn for fuel.
It is crucial we continue our support of U.S. farmers in the form of federal crop insurance and disaster payments. Farmers are ready to sacrifice a percentage of these payments in the national effort of balancing the budget. However, they face extensive financial risk each time they plant a new crop.
We must stand by U.S. farmers at this critical time or face food prices that could escalate even faster than they are currently.