Behind the Cornucopia of Higher Food Prices

Food Prices Expected To Rise Significantly In 2014
Justin Sullivan/Getty ImagesA clerk rings up a customer at Cal-Mart Grocery in San Francisco.
By John W. Schoen

Alert shoppers are accustomed to watching food prices go up and down. But a string of forces -- from droughts to diseases -- is raising the cost of a trip to the grocery store at a rapid clip.

And it looks like it will be a while before the price pressure eases.

Some of that pressure is coming from California -- the source of roughly half the nation's fruits and vegetables -- where a long-running drought is forcing farmers and ranchers to cut production. After the driest year on record, large sections of farmland are expected to lay fallow this year as the Golden State copes with an ongoing water crisis

That could have "large and lasting effects on fruit, vegetable, dairy and egg prices," according to a recent USDA report, which said the full impact has yet to be felt.

Smaller cattle herds have forced meat prices higher in March -- up more than 5 percent from a year ago, as demand remained strong despite tightener supplies. Ranchers are getting higher prices for cattle and food companies are able to pass them along.

Pork prices also have been rising after higher feed costs last year forced hog farmers to cut production. The upward price pressure on pork intensified this winter when a deadly virus thinned pig herds. That's expected to bring even higher prices for this summer's grilling season, when demand typically picks up."I think consumer should expect record high meat prices his year," Tyson Foods (TSN) CEO Donnie Smith told CNBC last month. "You should expect to see very high prices for your ground beef, your other meat cuts, all the pork cuts will be higher this year."

Food prices are notoriously volatile, subject to short term spikes and drops based on weather-related shortages and surpluses. But the forces at work this year are longer-lasting.

An ongoing contraction in the U.S. dairy herd, for example, is pushing up retail prices of cheese, ice cream, and other processed dairy foods.

Farm egg prices have been among the most volatile, jumping by 20 percent in February after dropping by 28 percent in January.

U.S. farmers aren't the only ones facing a production squeeze. A drought in coffee growing regions of southern Brazil, the world's largest coffee producer, has pushed up the cost of a cup of Java worldwide. Coffee futures have surged 57 percent this year and rose above $2 a pound last month for the first time in two years.

With bacon and coffee prices surging, breakfast is becoming more expensive -- especially if you include a glass of orange juice. Future prices are up 12 percent this year, hitting two-year highs, after Florida's orange crop was hit by an insect-borne disease that's expected to cut yields to the lowest levels in nearly a quarter century. Production could fall by about 15 percent to 114 million boxes this year, according to government forecasts, the lowest level since 1990.The recent series of food price hikes follow a relatively long stretch of stable consumer prices. Since 1990, retail food prices have risen by an average of 2.8 percent a year, according to USDA. From February through December of last year, average supermarket prices fell by 0.2 percent.

Consumers are also coping with higher costs beyond their supermarket shopping cart. After a brutal winter in much of the country kept shoppers home, a pickup in demand has sent clothing and used car prices higher in March.

Rents are also going up in most of the country, up 2.7 percent in the latest 12-months, a pace not seen since the housing market collapsed in 2007. Medical costs are also rising.

Because food prices are typically more volatile than other consumer costs, economists and policy makers at the Federal Reserve usually ignore them when looking at the so-called "core rate" of inflation. But after a long period of inflation running less than 2 percent a year, the latest surge in prices bears closer watching, according to Capital Insight senior economist Paul Dales.

"We suspect that core inflation will rise to 2 percent this year and beyond it next year, which would catch the Fed off guard," he wrote in a recent note to clients.

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Here's a thought, go look at commodity price charts since 2000. This is about the time when electronic trading platforms made the commodities markets every investor's own personal casino. Both high volatility and peak prices followed. Today, a good chunk of the price you pay at the checkout stand at the grocery store and gas pump (as high as 30% in some cases), is the speculative premium passed on to the ultimate consumer. Add to this — and this is going to make some cry and others rage—the impact of climate. Droughts caused a lot of livestock producers to sell off rather than lose their herds and flocks (beef, pork, poultry), field crops were lost or never planted. This was further exacerbated by late freezes that caused other crops to fail. Yup! You guessed it — climate change. Of course some climate change is natural (Timbuktu used to be in the middle of a savannah now it's surrounded by desert) , but we have been putting pressure on the natural part for some time now. Atmospheric CO2 from energy consumption has been increasing about 1.7%/year since the start of the decade and it accounts for about 57% of green house gases. Need some numbers? That's about 34240 million metric tons (2200+ lbs.) this year. Add to this the other 43% (CO2 from other sources, methane, NO2, and fluorinated gases) and it adds up to a whopping 60070 million metric tons. Mom nature gave us a cozy blanket — the atmosphere — and we are putting a down comforter on top of it. Deny it if you will, but both the thermometer and your grocery receipts suggest otherwise.

April 21 2014 at 2:09 PM Report abuse rate up rate down Reply


April 21 2014 at 10:09 AM Report abuse +1 rate up rate down Reply

I bought one small "Gala" apple yeasterday, in Arlington, TX, at a Kroger's grocery. When I got home I checked my receipt and was SHOCKED that it cost me 86 cents! I'm thinking about taking it back today..................

April 21 2014 at 5:50 AM Report abuse +1 rate up rate down Reply

When prices climb too high and food sits on the shelves and rots then the might grasp the idea that they are overcharging. I now look around for the best prices on meat at other stores. Giant is charging too much for Milk, Hamburger and Pork Chops. When will these companies realize you can only raise prices so much, Then people will simply just stop buying the overpriced food. Remember everything has a shelf life and when time gets short prices drop. so it sells. If not it rots.

April 21 2014 at 12:11 AM Report abuse rate up rate down Reply

Gas prices went up so high witin the kast ten or so years because of some reason the news and government stated that again people believed and Exxon bragged ut was their best profit year yet. I will water my garden to not spend as much in the stores (mulching constantly and reusing water from house will help) and maybe just buy farm eggs from local growers. I will try to not support this price increase as much as I can because I for one know companies could go this year with no bonus to executives and make a little less profit abd still be ahead to help our nation from struggling yet again. Such a shame it's all about greed.

April 20 2014 at 11:45 PM Report abuse +4 rate up rate down Reply

Don't think you can switch from beef to fish;
because Fukushima is radiating and/or killing off all of the fish in the Pacific.....

April 20 2014 at 11:21 PM Report abuse -1 rate up rate down Reply

Obama is kicking all the cattle ranchers off of the US government grazing lands;
so Hawwy Weedy and the Clitons can sell all the land to China;
so you got to expect beef prices to go up in the stores.......!!??

April 20 2014 at 11:18 PM Report abuse -2 rate up rate down Reply
1 reply to YourFtr's comment

All one of them, idiot?

April 21 2014 at 3:45 AM Report abuse +5 rate up rate down Reply

If the government says there is no inflation, then there is no inflation.......and I can keep my insurance provider.........and there is no problems at the IRS.....and Snooki and Kartrashian are going to run off with Billary............

April 20 2014 at 9:53 PM Report abuse -4 rate up rate down Reply

Give up all that red meat and pork since it is bad for heart and arteries. Your cholesteral will begin to drop once you stop eating that stuff since it is all bad. Try to find Amish chicken and some type of safe seafood. Cheese also is bad for your arteries as well so cut back on that. There are other juices as well and stick to Florida OJ and avoid those juices from foreign countries. Read the label on Minute Maid OJ, dump that one fast. Other states produce fruits and vegetables so try to demand your markets carry those. Things are getting way out of hand and so much greed is at the bottom of most of these issues. Most of our food supply has gotten so bad due to chemicals and garbage they are putting in it that it all tastes terrible. Shopping is a big chore now. We can grow things now that weather is warming up. I no longer eat red meat.

April 20 2014 at 9:30 PM Report abuse +2 rate up rate down Reply

Must not be enough people growing food and farming if things get messed up that quick...

April 20 2014 at 9:01 PM Report abuse +2 rate up rate down Reply