Higher farm-gate prices will support consumer food prices, experts say | So Good News

Experts say consumers are seeing higher prices at stores and restaurants for a while because of tighter commodity markets and higher prices for agricultural inputs that go into food.

The cost of the producer must be passed on to the consumer; it’s not over yet,” said Tom Bailey, consumer food analyst at Rabobank. “There are many trees to be crossed. Not everyone has recovered the lost income from 12 months to 18 months.”

Bailey said producers saw a double-digit increase in input prices in 2021, but consumers didn’t see an increase in feed prices until May 2022.

Producer prices begin to fall, consumer prices often continue to rise or stay low before rebounding, but producer prices and consumer prices eventually find a balance over time, Bailey said.

In a recent Ag Data News article, University of California-Davis economist Aaron Smith says the gap between food prices and other purchases should close when unprocessed food prices fall. “This means that food prices are expected to grow more slowly than financial prices in a year or two,” he said.

But farmers will continue to face pressure on production costs.

“Ultimately one of the most important things, if not the most important business, is the farm gate. If we lose this, we are in serious trouble,” said Bailey. He said some farmers are being squeezed who do not have money to cope with the rising cost of commodities. Although the prices that farmers receive in some areas are very high, their input costs are double and have been for some time.

Tom Bailey, Rabobank

“Now their acceptance rates are going down, and their [costs of goods sold] he’s sitting on top, the squeeze is starting to get worse,” Bailey said.

Some farmers have fences and can monitor how they can avoid exposure. However, Mr Bailey also warned of an increased chance of farm consolidation in 2023 due to rising production costs.

The USDA’s Economic Research Service is forecasting price variations for various food groups in 2023. Grain and bakery prices are expected to rise another 5% to 6% in 2023, while milk prices are expected to rise 3% to 4%. Consumers are expected to pay 2% to 3% more for meat, poultry and fish next year. Fruit and vegetable prices are expected to remain stable.

A shortage of cattle is expected to push up beef prices, according to the latest Rabobank North American Agribusiness Review survey.

John Newton, finance director for the minority staff of the Senate Agriculture Committee, said fed cattle prices are the highest they have been in seven years as cattle are dwindling and many are facing drought. He expects beef prices to hold, assuming demand remains strong, but said worries about a recession could also dampen demand for the product.

Meanwhile, Rabobank said pig slaughter is currently about 1.6% lower than a year ago because market conditions are below expectations and because packers are reducing harvests to maintain margins.

In addition, “There is a risk that the domestic shortage and the availability of more chickens could weigh on sales, although the current situation remains lower than in previous years,” said Rabobank.

Producers take different parts of the food dollar depending on what they are selling. Farmers’ share is higher for fruits and vegetables, dairy and other meats than for foods that require a lot of processing. The farm portion is also the smallest portion of food served in restaurants or takeout.

Overall, about 18 cents of every dollar consumers spend at the grocery store goes to producers, and 3 cents of every dollar they spend on food eaten at home, according to the USDA’s Economic Research Service.

“Even though consumers are paying more for food at the grocery store, that doesn’t mean all of that money is going to the producer,” Newton said.

According to an analysis of price data by the USDA and the National Farmers Union, farmers are getting $2.09 for a gallon of milk that is bought in the store at $4.39 and $1.94 for a dozen eggs that sell for $3.99; The farmer’s share for one kilogram of apples sold for $1.25 is 72 cents.

On the other hand, farmers receive only 20 cents for a loaf of bread sold for $4.19, while an 18-ounce box of cereal priced at $3.49 earns a farmer only 10 cents. A portion of a one-pound boneless ham that sells for $12.98 is $1.16.

ERS estimates that food prices will be 9.5% to 10.5% higher this year than in 2021 and 3% to 4% higher in 2023, which would still be above historical lows for food prices. These figures include food bought at the supermarket for home use and food eaten at home.

Prices of eggs and milk as well as bakery products and vegetable oils have been among the main contributors to the fall in prices.

According to the latest Consumer Price Index, egg prices rose 10% in October and have risen 43% since October 2021, due to the spread of the highly potent avian influenza (HPAI).

The ongoing outbreak of avian flu significantly reduced the egg production of US eggs, and the chicken population to a lesser extent, according to the ERS.

Meanwhile, the amount of eggs consumed has dropped by about 15% from pre-pandemic levels.

John Newton, Senate Ag GOP Chief Economist The egg industry is facing criticism for the high prices consumers are paying at the grocery store.

“It is important to know that often farmers do not choose the final price of their eggs. Eggs are sold at higher prices, like corn and wheat,” according to the American Egg Board, which added that the short-term increase in egg production reflects many factors such as problems related to supply chain, cost and availability of food and grain, labor and transportation. , and the strain of current bird flu epidemics.

Consumer prices for dairy products are up 15.5% over the past year, according to the latest CPI. The average price of a gallon of milk has risen 30% since December, according to the USDA. The Producer Price Index for dairy products rose 17.9% last year.

Peter Vitaliano, the National Milk Producers Federation’s vice president of finance and market research, said before last year, dairy prices rose more slowly than other food and beverage prices.

Vitaliano said the increase in milk PPI is due to the shortage of milk which is causing the prices of milk to be very high. This started in mid-2021, but by 2022, it started to bleed over into sales.

Farmers’ share of retail milk prices rises and falls over time. This year, producers are getting about 35% of what consumers pay. In 2009, farmers received only 24% of the sales price. In 2014, the share of farmers hit 39%.

For more information, visit Agri-Pulse.com.