Consumer-level food prices are expected to rise this year, reversing an uneven trend lower in 2016, as poultry, fish and seafood, and dairy prices are likely to see gains, The USDA’s Economic Research Service said in its latest Food Price Outlook, 2017.
The predictions were somewhat tentative at this point. Restaurant food purchases in December were up 0.2% from November and were up 2.3% from December 2015.
However, food-at-home expenditures fell 0.2% from November to December, capping a December-to-December decline of 2% and a 2016 decline of 1.3%. This marked the first annual decline in supermarket prices since 1967, the ERS said.
Looking at specific retail food categories, prices declined 21.1% for eggs, 6.3% for beef and veal, 4.1% for pork and 2.3% for dairy and related products, the ERS said. Conversely, fresh fruit rose 2.2%, and other foods rose 0.3% from 2015.
Several factors contributed to the decline in retail food prices. Increased production for many commodities, lower transportation costs as a result of deflated oil prices and a strong US dollar all had a hand. A strong dollar affects domestic prices as it makes US goods less desirable to foreign markets, leaving more potential exports on the domestic market.
While food-at-home prices declined in 2016, prices for food away from home increased 2.6%. Monthly restaurant prices have been rising consistently, in part because of differences in the cost structure of restaurants versus supermarkets. Restaurant prices primarily comprise labor and rental costs with only a small portion going toward food. For this reason, decreasing farm and wholesale food prices have had less of an effect on restaurant menu prices.
LOOKING AHEAD
Supermarket prices were expected to be steady to up 1.0% this year, assuming normal weather conditions, the ERS said. Severe weather or other unforeseen events could drive food prices up beyond their forecasts.
In particular, extensive drought could have large and lasting effects on fruit, vegetable, dairy and egg prices, the ERS said. Also, a stronger US dollar could continue to make the sale of domestic food products overseas more difficult, increasing the supply of foods on the domestic market and pressuring retail food prices.
BEEF AND VEAL
Beef and veal prices decreased 1.4% from November to December and are 5.6% lower than this time last year, the ERS said. The increased pace of cattle slaughter, especially during the second half of 2016, coupled with increased carcass weights resulted in higher year-over-year beef production.
That higher production and the large supplies of beef held in cold storage pressured prices throughout the cattle and beef complex, the ERS said. Prices for feeder and fed cattle trended lower for most of 2016, spilling into the retail market around August.
Prices were expected to continue declining in the near future. Prices dipped 6.3% in 2016, and the ERS predicts an additional 2.5% to 1.5% decay in 2017.
CASH CATTLE TRADE STEADY-HIGHER
Average fed cattle exchange auction prices Wednesday were $1.45 per cwt higher at $121.97, versus $120.52 a week earlier.
Cash cattle then traded lightly at $121.50 to $124 on a live basis, up $0.50 to $1.
No dressed-basis trades were reported Wednesday but moved at $193 to $194 per cwt last week.
The USDA’s choice cutout Thursday was up $1.75 per cwt at $193.00, while select was up $0.58 at $189.74. The choice/select spread widened to $3.26 from $2.09 with 80 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Wednesday was $132.62 per cwt, down $0.70. This compares with Thursday’s Jan settlement of $131.82, down $0.55, and Mar’s settlement of $127.10, down $2.75.