Only Moderate Retail Food Price Inflation Projected Near-Term
With wholesale food prices in the U.S. trending higher, The Food Institute projects retail food prices will move up as well, but only moderately.
With wholesale food prices in the U.S. trending higher, The Food Institute projects retail food prices will move up as well, but only moderately. Using the Bureau of Labor Statistic’s Consumer and Producer Price Index reports, The Food Institute found that wholesale food price advances versus a year earlier, have exceeded those at retail for 13 straight months through May 2013 and indicate the food-at-home price index will move up as well by August, into the 1.0% to 1.5% range. From a historical perspective, this is still an extremely moderate inflation level.
As noted in the recent Food Institute/Willard Bishop webinar on the future of food retailing, this low inflation rate means that the nation’s grocers will have to work harder to increase their top line sales compared to a year ago. A free recording of the webinar can be found at http://www.foodinstitute.com/ffr2013.cfm where projections on where food retailing may be headed through 2017 can be found.
As for specific categories:
While retail food prices for pork were under year-earlier levels for the first four months of this year, wholesale prices have been trending higher with wholesale pork prices up nearly 4% from a year earlier in May, according to the Bureau of Labor Statistics. The Dow Jones-UBS Commodity Index meanwhile put live hog prices up 19% through mid June – the largest gain among all commodities. Increased demand due to higher beef prices is one of the main factors driving prices higher, giving pork producers a chance to recoup some of the higher costs they encountered in recent years as feed grain prices advanced.
Increased slaughter activity has resulted in a downward trend in prices at wholesale, and at retail prices through the first five months of 2013 were up just 2.6% from a year earlier. USDA notes that seasonal patterns would suggest further declines into summer.
USDA’s Economic Research Service also stated late last month: “Ongoing drought in most of the Western United States and declining cow-calf producers’ profit margins continue to motivate relatively high levels of beef cow slaughter. Through May 25, 2013, second-quarter federally inspected weekly cow slaughter averaged 10% larger than for the same period in 2012, with beef cow slaughter up 17% and dairy cow slaughter up just over 3%. First half 2013 total commercial cow slaughter is projected to be 3% above first half 2012 slaughter and could be the largest number slaughtered since nearly 3.5 million cows in 1996. This high cow slaughter, combined with high heifer slaughter, implies a further decline in the national aggregate cow inventory and potentially reduced supplies of beef for several years into the future.”
With prices trending higher, the broiler industry seems reluctant to move into expansion mode, with the number of broiler chicks being placed for growout continues to be slightly lower than the previous year.
USDA reported that the May average price for boneless/skinless breast meat in the Northeast market was $1.95 per pound, a steep gain of 34% from the previous year. The average price for bone-in breast meat also rose strongly, up 19% from a year earlier. Even more unusual was the number of products whose wholesale prices were higher in May than the previous year even though at the end of April cold storage holdings were higher.
Milk & Butter
With projected corn prices raised by USDA recently to $6.75 to $7.15 per bushel for 2012/13 and 2013/14 corn supplies tightening, a more robust expansion in the dairy herd becomes more unlikely.
USDA’s June milk production forecast for 2013 was unchanged from May at 201.8 billion pounds. Milk production in 2014 was lowered in June from May’s forecast to 204.5 billion pounds. Weak milk-feed price ratios will likely slow production growth through much of 2014.