USDA Holds Overall Food Price Inflation Outlook Steady Vs. April

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U.S. food price inflation for 2016 is still seen at 1.5% to 2.5% compared to 2015, unchanged from the April outlook even though there were several changes made to the forecasts in several commodities, according to USDA’s Economic Research Service (ERS). USDA also changed a host of price forecasts in their April outlook.

USDA left the food away from home (grocery store) food price forecast at a 1% to 2% increase from 2015, but reduced the forecasts for several meats and dairy products. USDA made the following adjustments:

Beef and veal: Prices declined 0.2% from March to April and are now 5.6% lower than this time last year. “In previous months, price changes were affected by declining U.S. beef exports, which helped to increase the supply of beef on the US market,” USDA noted. “This increased supply, along with weak beef demand, has placed downward pressure on retail beef prices. Additionally, favorable pasture conditions in some areas in 2015 and lower feed prices have allowed cattle producers to feed cattle longer and to hold cattle for herd expansion. Aided by a strong (though somewhat weaker) dollar, lower prices have led U.S. beef to become more attractive abroad.”

Forecast update: ERS now predicts beef and veal prices will decrease 3.0% to 2.0% in 2016 compared to their April forecast decline of 2.0% to 1.0%.

Poultry: Prices are up 1 % from March to April but remain 3.1% lower than last year. “While broilers have largely been unaffected by HPAI, broiler prices have been affected due to some countries instituting bans or partial bans on U.S. poultry exports,” USDA said. “Furthermore, a strong US dollar has resulted in more chicken broilers remaining on the U.S. market which, in turn, places downward pressure on retail chicken prices. Chicken prices rose 1.1% from March to April but are 3.7% lower than they were at this time last year. Prices for other poultry, including turkey, were also up in April, increasing 0.2% from March to April.”

Forecast update: ERS now forecasts poultry prices to increase 0.0% to 1.0% in 2016 compared to their April forecast for a 1% to 2% increase.

Dairy products: Prices rose 0.1% in April but remain 2% lower than they were in April 2015. Milk prices have declined month-over-month and year-over-year—down 0.8% from March to April and down 5.6% since April 2015. “Reduced dairy prices have followed global patterns—with a strong US dollar and high milk supplies from the European Union, US exports have decreased while imports have increase.”

Forecast update: ERS now predicts dairy product prices to rise 1.0% to 2.0% in 2016 compared to an outlook for a 2% to 3% increase in their April forecast.

Comments: The overall food price inflation level is below the 20-year average of 2.6% and the grocery store price increase also is a full percentage point under the 20-year average at the current forecast midpoint for those prices. Only the price for food away from, forecast at 2.5% to 3.5%, is above the 20-year average of 2.7%. But this still keeps the overall situation for US consumers relatively positive from a cost perspective and is another area that is not pushing up inflation beyond historical levels, still a potential concern point for the Fed. Plus, the value of the US dollar continues as an impact point on US livestock/product exports.

It will be interesting to see if another round of changes to food prices are made in their June update, and if so, will they be enough to shift the overall outlook. History shows it general takes a sizable revision to several food categories before the overall outlook or the restaurant or grocery store price outlooks are adjusted.

NOTE: This column is copyrighted material; therefore reproduction or retransmission is prohibited under U.S. copyright laws.