FOOD MARKET OVERVIEW The food price index from the Food and Agriculture Organization of the United Nations is an average of six commodity groups: meat, dairy, cereals, oils, fats and sugar.
FAO Food Price Index
160 140
2010
2011
2012
120
2009
2002-2004 = 100
180
Jan 09
Jan 10
Jan 11
Jan 12
100 80
Source: FAO.org
Food market update
Corn 14%
Soybeans Lean hogs 22% -5%
Wheat 26%
The U.S. drought This summer’s severe drought in the U.S. led to rapid increases in prices in the corn and soybeans commodities markets. In July, the USDA said 45 percent of U.S. corn fields were in “poor” or “very poor” condition.1 Weather will likely lead to the lowest yield per acre of corn since 1995.1 Rising corn and soybean prices will also impact markets such as cattle and hogs, where corn is a feed stock. U.S. food prices The USDA projects food prices will increase 2.5 - 3.5 percent in 2012, following inflation of 3.7 percent in 2011.2 The USDA’s 2013 inflation forecast is 3 - 4 percent, with the greatest increases expected in beef and dairy.2 While we are currently seeing dramatic increases in food commodity prices, the USDA expects that most drought-related price
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Live cattle 7%
Sugar -24%
Coffee -28%
Source: CNNMoney.com. Price change shown is from 7/26/2011 – 7/26/2012.
inflation will not be passed on to consumers until late 2012 and early 2013.3 According to U.S. Secretary of Agriculture Tom Vilsack, “Because livestock producers will begin the process of potentially reducing their herds in light of higher feed costs, we would anticipate in the short term actually food prices for beef, poultry, and pork may go down a bit, but over time they will rise.” 3 In the U.S., a very small percentage of food prices are directly tied to farm- level costs (most of the cost is in packaging, marketing, and distribution). Many economists expect rising corn and soybean prices to
minimally impact U.S. consumers. As Mark Doherty, senior economist and policy analyst at the Illinois Farm Bureau explains, “We have found through past years, in products other than meat products, corn and soybeans really have very little impact on the price of food. That's because the cost of raw corn — even in a bucket of popcorn at the movies — is tiny, a few cents even if corn were to double in price.” 4 References 1. “Report on US corn crop worst since 1988,”FT.com, http://www.ft.com/intl/cms/s/0/42df334cd4e7-11e1-b47600144feabdc0.html#axzz22DjPJBtM (accessed 7/31/12). 2. “Food Price Outlook 2012,” USDA, http://www.ers.usda.gov/data-products/foodprice-outlook.aspx (accessed 7/31/12). 3. “Press Briefing by Press Secretary Jay Carney and Secretary of Agriculture Tom Vilsack,” USDA, http://www.usda.gov/wps/portal/usda/usdahome?contentid=2012/07/0244.xml&navid=TR ANSCRIPT&navtype=RT&parentnav=TRANSCRIPTS_SPEECHES&edeployment_action=retrievecontent (accessed 7/31/12). 4. “Drought’s impact on consumer food prices to be minor,” ChicagoTribune.com, http://www.chicagotribune.com/business/ctbiz-0801-bf-drought-prices20120801,0,4749595.story (accessed 8/1/12).