USDA Downgrades 2016 All Food, Grocery Store Price Forecasts

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US consumers will see a smaller bill at the grocery store in 2016 compared to 2015 and overall food price increases are now seen at 1 percent (range of 0.5 percent to 1.5 percent), according to the Food Prices update from USDA’s Economic Research Service (ERS).

Food at home or grocery store prices are now forecast to range between minus 0.75 percent to up 0.25 percent, Which ERS said is a “rate of inflation (or possibly deflation) that would again fall below the 20-year historical average of 2.5 percent. The forecast has been lowered due to recent declines in prices for beef and veal, poultry, and eggs. Lower transportation costs due to deflated oil prices as well as the strength of the US dollar have placed additional downward pressure on food prices in the first half of 2016.”

The US dollar strength is impacting the competitiveness of US goods on the global market, “leaving more potential exports on the domestic market,” ERS noted.

So far in 2016, ERS said grocery store prices are down 1.1 percent compared to this point in 2015. “Retail food prices have remained flat or decreased for 7 of the first 9 months in 2016,” ERS detailed.

For 2017, ERS now forecasts food prices to rise between 1 percent and 2 percent. “Despite the expectation for declining prices in 2016, beef and veal, poultry, and dairy prices are expected to rise in 2017,” ERS said, adding their usual caveats that the forecasts for 2017 could be altered by several factors, including weather, energy prices and the value of the US dollar.

Beef and veal prices decreased 0.7 percent from August to September, ERS said, and were 7 percent lower than this time last year. ERS predicts beef and veal prices will decrease 6.5 to 5.5 percent in 2016 and increase 1.0 to 2.0 percent in 2017 as US beef is seen becoming more attractive in foreign markets due to lower prices.

In September, pork prices fell 1 percent from the previous month and are 3.6 percent lower year-over-year. ERS predicts pork prices to decrease between 3.5 and 2.5 percent in 2016. However, lower wholesale pork prices and a moderating exchange rate will increase the number of pork exports, prompting a forecast for prices to be steady to up 1 percent in 2017.

Egg prices increased 1.3 percent from August to September—the first monthly increase since February 2016, ERS detailed. However, prices are still 37.6 percent below September 2015 levels. ERS forecasts egg prices to decrease 19.0 to 18.0 percent in 2016 and to change -0.5 to 0.5 percent in 2017.

Prices for dairy products increased 0.6 percent in September but remain 2.5 percent lower than they were in September 2015. Retail milk prices have increased month-over-month—up 2.2 percent from August to September—but are down year-over-year—down 3.3 percent since September 2015. ERS predicts dairy product prices to decrease between 2.0 and 1.0 percent in 2016 but rise between 1.5 and 2.5 percent in 2017.

Comments: These updated forecasts are significant in that based on USDA data going back to 1974, there has never been a forecast for a price decline in terms of grocery store prices. The meat sector is one area where the consumer food bill is considerably cheaper than it was in 2015, pulling down the overall rate of increase. The current price situation for meat/products is one that is now partially overcoming the impacts from a stronger US dollar index, but no doubt the greenback is keeping a lid on US beef and pork export potential.

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