USDA Chief Economist Robert Johansson reviews consumer prices and factors driving those prices.
What affected food markets over the past few weeks?
Food markets continue to deal with unprecedented and simultaneous shocks to supply and demand that impacted the entire supply chain and caused significant shifts in demand patterns. The most recent report from the U.S. Census Bureau on sales for retail and food services shows that demand for food at grocery stores has declined from the record levels we saw in March but remains 13% higher than same period last year. On the supply side, there have been temporary closures of a number of meatpacking plants and a slower pace of slaughter at others due to COVID-19, which led to tightening supplies of some meat products over the past few weeks.
As a result, consumers saw an increase in retail food prices in April, led by meats and eggs. According to data from the Bureau of Labor statistics, the food price index increased 1.5% in April, following a 0.3% increase in March. The index for meats, poultry, and fish rose by 4.3% and the cereal and bakery index increased 2.9%, its largest monthly increase ever recorded by BLS. The food at home Consumer Price Index increased 3% from March to April and 0.5% from February to March, based on May 27 data.
There were wide variations across products. Prices of ground beef rose by 4.4%, for example, while prices of boneless beef stew fell slightly. Similarly, bread prices increased by 2.3%, but prices of flour rose by less than 1%.
The increase in meat prices was mostly the result of declining meat supply following the closures of some meatpacking plants. USDA’s National Agricultural Statistics Service estimates that beef production in April was 20% lower than in April 2019, while pork production fell 10% below a year earlier. Production of turkey was also down 9%, while chicken meat production was about unchanged from a year earlier.
By comparison, the increase in prices of cereals and bakery products appear to be entirely demand-driven. Wheat milling operations haven’t been disrupted by the pandemic and many mills are reportedly operating at capacity to meet demand.
What's the outlook for food supply and demand?
Looking ahead, the initial projections for U.S. and global supply and demand of agricultural commodities for the new marketing year 2020/21, point to abundant supplies and flat prices—both in the U.S. and globally— of agricultural commodities that consumers rely on for everyday food.
In the U.S., stocks for 2020/21 are projected at healthy levels and production is projected higher for all commodities, except wheat, which is projected to fall 2%.
For food grains, wheat production is projected at just above 1.8 billion bushels, that’s almost double what we expect to consume domestically for food during the year. Moreover, the price of wheat is expected to remain flat in 2020/21. U.S. rice production in 2020/21 is also projected up 17% from the previous year, and price is projected down fractionally from last year.
The initial forecast for 2021 meat production is for red meat and poultry production to set a record at 107 billion pounds.