Experts predict food prices will continue to rise amid soaring commodities prices and surging costs for farmers.
Inflation is roaring throughout the economy, and that includes food prices at grocery stores. Experts predict those prices will continue to rise amid soaring commodities prices, surging costs for farmers and sustained supply-chain disruption.
Grocery prices climbed 1% in January, putting the gain at 7.4% for the 12 months through January. Cereals and bakery products led the price gains last month at 1.8%. Price increases for dairy and related products followed at 1.1%, with fruit and vegetable prices gaining 0.9% and meat, poultry, fish and egg prices increasing 0.3%.
“Grocery prices … have increased by 11% over the last two years—the fastest pace since the financial crisis—as a combination of bad weather, poor crop yields, elevated demand, and historically tight inventories pushed the price of food commodities up by nearly 40% over that same period,” Goldman Sachs economists wrote in a commentary.
And they don’t see things changing much. “While weather-related spikes in crop prices often reverse, the soaring costs of certain farming inputs—including a nearly five-fold increase in some fertilizer prices—will limit the extent to which commodity prices can meaningfully revert,” the economists said.
“With food commodity prices already having increased by an additional 6% this year and our strategists expecting them to rise further on net over the next couple quarters, the stage has been set for further substantial increases in retail food prices this year.”
Goldman forecasts grocery price will ascend another 5% to 6% in 2022, though it sees risks in both directions to that forecast.
Rising Costs For Farmers
Farmers face much higher prices for everything from fertilizer to seeds, to equipment repair, to anti-weed chemicals to labor, The Wall Street Journal reports. And higher prices for farmers mean higher prices for groceries.
“Fertilizer costs, which normally make up more than one-third of input costs for nitrogen-intensive crops like corn, have soared since the start of the pandemic,” the Goldman economists said.
“And with diesel and seed prices also set to rise by nearly double digits, our commodity strategists estimate that corn input costs will increase 17% this year.”
Rising costs for farmers could lead to output cuts for corn and other crops, boosting food prices, analysts told The Journal.
“I don’t think there is any reprieve for food prices to come down,” Kevin McNew, chief economist for the Farmers Business Network, an agricultural supplies market, told the paper. “It’s not just a logistics issue, or supply-chain issue to grocery stores, it’s deeper rooted than that.”
Cereal Prices Are Rising
Meat prices jumped 15% last year, and Tyson Foods (TSN) – Get Tyson Foods, Inc. Class A Report CEO Donnie King gave no indication that will change soon in a conference call with reporters last week, MarketWatch reports. “We’re seeing inflation across our supply chain,” he said.
Breakfast-cereal prices ascended 5.2% in the 12 months through January amid higher costs for ingredients, such as wheat, corn and oil.
Kellogg (K) – Get Kellogg Company Report CEO Steve Cahillane sees widespread inflationary pressure. “Bottlenecks and shortages on everything from labor to materials to freight impeded supply across the global economy and created incremental costs and inefficiencies that were difficult to plan for,” he said, according to Food Dive.
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