The USDA Consumer Price Index for food was flat from October to November and is now 3.2% above the November 2013 level, USDA said in its price update last week.
The food-at-home CPI for grocery store food items was down 0.2% in November and is 3.4% higher than last November while the food –away-from home CPI increased 0.4% in November and is up 2.9% from last November.
The food-at-home CPI has increased more in the first 6 months of 2014 than it did in all of 2013; however, given its current trajectory, it is on track for normal annual inflation, USDA says.
Looking ahead to 2015, ERS predicts that food-at-home prices will see normal to slightly lower than average food price inflation, increasing 2 to 3%.
Meat prices will likely continue to experience the effects of the Southwest drought and Porcine Epidemic Diarrhea virus in the immediate future, 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, ERS says.
This forecast is based on an assumption of normal weather conditions; however, severe weather events could potentially drive up food prices beyond the current forecasts, according to the report.
In particular, the ongoing drought in California could have large and lasting effects on fruit, vegetable, dairy, and egg prices, and drought conditions in Texas and Oklahoma could drive beef prices up even further.
Key food price changes
Pork prices fell again in November, decreasing 2.1% from the previous month. However, pork prices are now up 9.9% from last year. Retail pork inflation is largely due to the effects of PEDV which has reduced the autumn number of hogs ready for production.
There are some signs of industry expansion, ERS says. 2015 hog prices are expected to fall 15% below 2014 figures. ERS predicts pork prices to rise 8.25 to 9.25% in 2014 and 4.5 to 5.5% in 2015.
Prices for poultry rose 0.7% from October to November and are up 2.5% year-over year, while egg prices rose 2.8% from October to November and are now 6.2% above November 2013 levels.
Beef and veal prices continued to rise, increasing 0.8% from October to November and 18.1% year-over-year. Prices remain high, as the U.S. cattle inventory is currently at a historical low.
Pasture conditions have improved somewhat in the Southern Plains and Southwest but not significantly in the West. In addition, improved crop yields allow cattle producers to feed cattle longer and to hold cattle for expansion. However, signs of herd expansion at this point are anecdotal at best, ERS says.
Many producers are holding on to their inventory to increase live weights, as steer and heifer prices have hit record highs. Most retail beef prices, on average, are also at record highs, even after adjusting for inflation.
ERS predicts beef and veal prices will increase 11.0 to 12.0% in 2014 and 4.5 to 5.5% in 2015.
The prices of dairy products decreased 0.2% from October to November and are 5% above November 2013 prices. Exports have recently fallen, as imports have started to move upward and world dairy prices have fallen below domestic prices. Cheese prices were flat from October to November but are up 8.5% year-over-year. Lower feed prices, however, currently favor dairy expansion. ERS predicts dairy prices to increase 3.0 to 4.0% in 2014 and 2.5 to 3.5% in 2015.
Producer price index >>
Inflation rates for farm-level cattle and wholesale beef have remained high in 2014, as U.S. cattle herd sizes remain low. In November, cattle prices increased 3.3% and are now up 30.1% since this time last year.
Wholesale beef prices increased, rising 0.8% on the month and are now up 28.6% year-over-year. ERS predicts farm-level cattle prices to increase in 2014 by 21.5 to 22.5% and wholesale beef prices to increase by 17.5 to 18.5% over the same time period.
If pasture and water conditions continue to improve in the western half of the United States, herd expansion could be expected in the future. However, increases in beef production require time, as it takes roughly 16 to 18 months from birth until cattle are ready for market, ERS says.
Wholesale pork prices fell in November, decreasing 8.9% since October; wholesale pork prices are up 9.3% since this time last year. ERS predicts that wholesale pork prices will increase 20.0 to 21.0% in 2014 and 4.0 to 5.0% in 2015.
Farm-level milk prices fell 7.5% in November and are now 8.3% higher year-over-year. While feed prices have become less expensive and dairy cows are now producing more milk, high demand for milk and related dairy products has driven up prices in the first half of 2014.
Looking ahead to 2015, low feed prices may promote dairy expansion, increasing the supply of milk and other dairy-related items. ERS now predicts that farm-level milk prices will increase 20.75 to 21.75% and 0.0 to 1.0% in 2015. Wholesale dairy is likely to increase 10.0 to 11.0% in 2014 and 1.0 to 2.0% in 2015.
Although farm-level soybean prices have declined in recent months, they increased 6.9% from October to November. Soybean prices are now 22.5% below the November 2013 level. Contributing to these lower soybean prices are the current record-high oilseed production levels.
Source: USDA ERS