Food prices rise throughout the US but will it ever settle
Food prices are expected to start rising in the US in 2022, after a major jump between January and March. While the volatility of these prices is likely to decrease as these products move from the farm to the retail sector, the price of meat and other items is expected to increase. The rise in prices is especially likely to affect meat, especially poultry, and fish, which are already at record high prices. Several factors will likely contribute to this increase.
As food banks report shortages nationwide.
Price volatility decreases as products move from the farm to the retail sector
The food industry is an important source of volatility, which has many implications for the consumer. In a richer nation, the price of agricultural products has a greater influence on the prices consumers pay in retail outlets. However, the retail sector is often poorly competitive, and this imperfect pass-through dampens the volatility effects. While a rise in food prices can increase household expenses, the link between food price volatility and wage demands is weak.
While the volatility of farm prices increases with the value added by marketing services, the price of food at the grocery store is unlikely to change as much as those on the farm. This is because of the increased processing of food before reaching consumers. Moreover, the retail prices of foods that are highly processed go through many companies before reaching consumers. While these companies often try to pass the costs onto consumers, farmers are not rewarded for their hard work.
The recent two decades have seen lower volatility in agricultural products than the 1970s and 1980s, with the notable exception of rice. However, this trend does not seem to be sustainable. The global macroeconomic outlook is extremely uncertain, and further imbalances may create further crises. Further, the US consumer may find fewer food products at lower prices in the future than it did in 2006.
Agricultural products in the US are highly volatile. However, they do not move as quickly from the farm to the retail sector, thereby lowering consumer prices. There are many factors that can increase the price volatility of agricultural commodities. One of these factors is strong international demand. In August 2020, U.S. beef exports increased 48% compared to the same period last year. Meanwhile, Chinese purchases of U.S. agricultural commodities increased significantly in the last two years.
Supply and demand
Currently, the U.S. Department of Agriculture predicts that food prices will increase by 2.5% to 3.5% in 2022, ranging from the cost of eating out to grocery prices. This increase will come in addition to recent price increases. The increase in grocery prices is expected to range from three to four percent, depending on the type of food that you purchase. For instance, prices of meats, poultry, eggs, cereals, and bakery products will increase between 2.2 and 3%, respectively.
Predictions are that food prices will increase by three to four percent in 2022, with prices rising most rapidly among bakery and cereal products. The forecast for the food market has been revised upward after large price increases back in January-March 2022. This is a sign that food prices are on the rise and continue to bounce up and down. Hopefully there is a longer time until they reach the point where they’re unaffordable for most citizens.
Poultry prices are also expected to increase by 6 to seven percent. The challenges of farming in 2022 also appear to have affected a number of poultry flocks in the United States. While a shortage of poultry has impacted the supply of American poultry, there also seems to be limited international demand. As a result, poultry prices are rising rapidly. Despite rising demand, there are still many problems in the market that haven’t been resolved.
Meanwhile, the recent Fed interest rate hikes have pushed prices upward, further boosting food prices. There are several factors that may lead to food prices increasing in the US in 2022. Some of these are listed below:
Shoppers switching to cheaper cuts of meat
As food prices in US begin to rise, some consumers are already trading down from steaks and rib-eyes to less expensive alternatives. Among other things, a recent study found that nearly half of US consumers had changed their plans for a particular category, such as steak, because of a shortage of the higher-priced cut. And 41% said that they had chosen a different cut because it was cheaper, but the package size they wanted was out of stock.
Meanwhile, dairy products are driving up retail prices. In 2022, the USDA predicts that dairy prices will rise between 4% and 5%.
Awareness of the economics of the US food system seem to be rising, despite it being difficult to make a fair analysis of the impact of rising food prices. According to the report, the cost of food has risen by 7.9% over the last year, and this inflation will be felt across the US economy. Moreover, meat companies’ production has increased, despite the high price of meat. This will be evident if prices continue to rise.
As the cost of food increases, grocery shoppers are also becoming more aware of the rising price of protein. Whether it is red meat, poultry, or fish, food prices are increasing. The increase is especially steep for the meat cuts that require labor. However, grocery executives say that consumers are looking for ways to save on the cost of meat. The price of meat and other food items is expected to rise by 2% to 3% between 2020 and 2022.
Fish and seafood prices also predicted to rise
Rising inflation isn’t the only factor causing food costs to rise, with seafood prices also increasing in the US in the near future. Supply chain problems and staffing issues are also driving the price hike. According to Smithsonian Magazine, wholesale prices for shellfish and finfish increased by 18.8% from June 2020 to June 2022. These increases translate into higher prices for consumers and local businesses.
While shrimp and scallops are relatively stable prices, the price of fish and seafood has skyrocketed overseas. As a result, salmon prices have increased by nearly 20% in the first half of the year. Meanwhile, other types of seafood such as clams, halibut, lobster, and oysters have been steadily increasing. In addition, transportation issues are also contributing to higher costs.
Regardless of the factors driving the increase in seafood prices, a few key trends will help the industry. The key players in the industry are expanding their product offerings. Innova, for example, sees opportunity in omega-3 fatty acids, value-added seafood, and sustainable packaging. While the industry is likely to continue to face a slowdown in the near future, it is predicted to grow over the next five years, boosted by increasing aquaculture production.
As the population ages and their taste preferences improve, seafood consumption is expected to increase. According to IBISWorld, by 2022, per capita consumption of seafood in the US will surpass that of the previous year’s rate. From there, the industry is expected to grow at a CAGR of 3.8%.
Beef and veal will see the largest price increase
The Economic Research Service (ERS) released data that shows food prices are increasing at an average rate of 3.5% in the US. The biggest percentage increase in 2022 will be found in beef and veal. Fresh vegetables will have the smallest increase at a mere 1.1% increase. The USDA estimates that food prices will continue to rise for the next several years. Beef and veal will see the highest price increase in 2022, followed by pork and poultry.
Retail and wholesale beef prices rose by 3.6% in March 2022. Pork prices increased by 1.4% due to port congestion. Other meats will increase between 3.5 and 4%. The USDA expects beef and veal prices to increase between 6.0% and 7.0% in 2022. Fresh fish will increase by 5% to 6.5% in the same year. This is much higher than USDA’s previous estimate.
In December 2020, beef was 18.6% more expensive than it was in December. However, prices are expected to increase another 3% to 4% in 2022. While beef and veal will see the largest increase in US food prices in 2022, the overall inflation rate will be lower in the first half of the year. Food companies will also see a decrease in run rates in the second half of the year.
The USDA predicts that US food prices will increase 5% to 6% in the coming years, but not all types of food will be affected equally. Beef and veal will see the largest price increase in 2022, followed by eggs. Fresh vegetables and fruits are expected to increase 2.5 to 3.5 percent and eggs by 4.5 to 5.5 percent. So, If people are planning on eating out often, then they should be prepared for the high prices of both.
Provided by Antonio Westley
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Disclaimer: This article is meant to be seen as an overview of this subject and not a reflection of viewpoints or opinions as nothing is definitive. So, make sure to do your research and feel free to use this information at your own discretion.
