Food price inflation is at its highest level in a decade. Successive years of poor growing conditions across several key commodities, coupled with strong demand, have pulled down agricultural product inventories worldwide to their tightest levels in years and driven prices higher. As many nations’ economies continue to recover from COVID-19, and issues ranging from labor shortages to intense drought emerge, the current period of high prices could be with us well into 2022 and beyond.
One of the strongest signals for continued food inflation is a second consecutive year of drought in agricultural powerhouse South America, brought on by the return of the La Niña weather event. Big producers Brazil and Argentina are headed for smaller harvests of major crops, especially corn, soybeans, and sugar, Gro’s machine-learning models show. Even a robust US harvest from the upcoming season won’t be able to make up for the depth of South America’s current crop troubles.
As a result, global supplies of many commodities will remain tight, and food prices, already soaring in most parts of the world, will remain elevated through yet another global crop cycle.
A broad acceleration of food price inflation in the US has been underway since May 2020, around the beginning of the COVID lockdowns. Gro’s US Food Price Index, which reflects prices based on consumption of a wide range of food items, is up 30% from this time last year.
The index’s increase signals a continuation of intense inflationary pressure on basic food necessities such as proteins and grains used in making a wide variety of packaged food products.
Rising US food prices have global impact, given the outsize role of the US in worldwide food and agricultural markets.
The Gro US Food Price Index updates daily and provides an inflation estimate for the current month, which is up to six weeks ahead of when official US government data becomes available.
The biggest drivers of US food price inflation are meat and poultry.
Wholesale US beef prices rose 25% in 2021 from the previous year, while poultry prices doubled, putting sharp upward pressure on retail prices as well.
Since late December 2021, US pork cold storage levels fell to 21% below five-year average levels. As boneless hams require more labor to remove the bone, they were in even tighter supply.
Robust consumer demand as economies pick up steam is driving protein prices higher, while labor shortages have restricted protein processor production.
Sharply higher animal feed costs have also pushed up protein prices.
Corn futures prices are up 5.5% so far in 2022, and up 35% year over year. Soybean prices have risen even more, gaining 17% so far in 2022 and 38% compared with last year.
Droughts in Brazil, Canada, and the US, along with unprecedented demand from China, tightened global supplies of grains and oilseeds used in animal feed.
Milk prices are up 31% year over year, also due to higher feed costs.
Higher Prices Worldwide
Vegetable oils are one of the most common commodities around the world, used widely in cooking and as ingredients in nearly every packaged food product. But as global vegetable oil supplies tighten, prices have risen substantially for more than a year, hitting profit margins of packaged food manufacturers.
Gro’s VegOil Feedstock Price Index, which tracks price changes in various edible oils, is up 41.8% in January from a year earlier.
The index is part of Gro’s newly launched Custom Price Indices application, which enables food manufacturers to create price indices of key ingredients, using customer-selected inputs and weights, and track inflationary pressures.
Potato prices in the US are up 20% year over year, amid declining production and supply chain disruptions around the world.
US potato production in 2021 was 7% below the five-year average as severe drought in several states resulted in the worst potato yields in years. The No. 1 producing state, Idaho, saw yields drop 9%.
Port disruptions and weak harvests created french fry shortages in markets from Japan to Kenya.
North American potato trade flows were curtailed after a potato wart outbreak prompted an export ban from Prince Edward Island, Canada’s largest potato producing province.
Gro’s yield forecast models for Argentina corn and soybeans currently show both crops will be down by double-digit percentages year over year.
Gro’s forecasts for South America are based on our extensive platform of data analytics, indices, and machine-learning models that have proved to be more reliable than government estimates and are available weeks or months earlier than official reports.
Years of major agricultural product inventory reductions coupled with strong demand have led to rising food inflation worldwide. An expected shortfall in South American production this season could exacerbate global supply shortages, prolonging inflationary pressures for food well into the new year.
US farmers can be expected to increase their total planted acreage of corn and soybeans, despite sharply elevated fertilizer prices, as crop shortfalls in South America prolong high commodity prices. But even a strong US harvest later this year won’t be sufficient to offset the damage already done to South American crops due to drought, Gro’s models show.
The result will be a continuation of tight global supplies for many commodities and persistent food price inflation through yet another global crop cycle. Additional increases in food prices in 2022 will hit consumers and further squeeze profit margins for food manufacturing and merchandising companies worldwide.