U.S. food prices will soar by an average of 6.8 percent this year, the highest annual rate since President Reagan’s first year in office — and that’s assuming price increases slow in coming months, said a University of Missouri think tank on Monday. Sky-high commodity prices are a factor, “but higher labor and energy costs and a range of other factors are much of the story,” said the Food and Agricultural Policy Research Institute.
“Consumer food price inflation has been accelerating in recent months,” said FAPRI in a five-page update of its forecasts for this year and 2023. “Food prices in March were 8.8 percent above year-ago levels, so food inflation would have to slow in the months ahead to average 6.8 percent for the year as a whole.”
Food inflation would be the highest since 1981, when it reached 7.8 percent following the inflation-riddled 1970s. Twice, food inflation shot above 10 percent during that decade — to 14.3 percent in 1974 and 11 percent in 1979. The food inflation rate was 8.6 percent in 1980.
“Events of the last three months have had large impacts on agricultural markets,” said the think tank. “The war in Ukraine, drought in South America and other developments have resulted in sharp increases in commodity prices. The result is higher farm receipts and costs, and higher consumer food prices.”
The farm-gate price of wheat, forecast at $8.08 a bushel for this year’s crop by FAPRI, would be the highest season-average price since the USDA began keeping records after the Civil War, when wheat fetched $2.06 a bushel. Prices bottomed out at 38.2 cents a bushel in 1931-32, during the worst of the Depression, and hit a record $7.77 in 2012/13 during the commodity boom.
Corn would sell for an average $6.06 a bushel and soybeans for $14.22 a bushel in the marketing year that opens on Sept. 1, when this year’s crops come to harvest. Those would be the highest average prices since 2012/13, when corn sold for a record $6.89 and soybeans for the highest-ever $14.40 a bushel. The war in Ukraine “has had a profound effect” on grain prices, said FAPRI.
Most livestock and poultry prices would be at or near record highs this year, due to strong consumer demand and a slight pinch in supplies.
“The outlook for 2023 and beyond depends on the evolution of the war in Ukraine, with weather and a host of other factors,” said FAPRI. “Assuming a partial return to ‘normality’ next year, we project lower prices for many commodities, lower net farm income and slow food price inflation in 2023.”
Higher prices for fertilizer and livestock feed are major elements in a 14 percent increase in farm production costs this year, compared to 2021, said the think tank. The $55 billion increase in production expenses would be largely offset by larger crop and livestock revenue, resulting in net farm income — a gauge of profitability — of $119.7 billion, a slight increase from last year’s $119.2 billion.
At that level, farm income would be $29.7 billion, or 33 percent, above the 10-year average for net farm income.
Shortly before the invasion of Ukraine, the USDA estimated 2022 net farm income at 113.7 billion.
The FAPRI report, “U.S. agricultural market snapshot,” is available here.