What is in this article?:
- Increasing commodity prices causing some concern
- Modest price increases
• The U.S. Department of Agriculture recently forecast the consumer-price index for food will rise between 0.5 percent and 1.5 percent this year and between 2 percent to 3 percent for 2011.
• Adverse weather, a weaker U.S. dollar, increased exports, higher crude-oil prices and heavy commodity contract buying by speculative investor funds have contributed to increasing commodity prices.
Modest price increases
‘He said consumers should expect to see a modest price increase in meat, poultry and dairy products in 2011, as well as an increase in grain prices due to temporarily tighter grain supplies.
“We’re seeing commodity price increases across the board, but are looking at a situation relating to U.S. stocks of wheat, corn and soybeans,” said Mark Welch, an AgriLife Extension economist at Texas A&M University in College Station who specializes in grain marketing.
Welch said quantities of these grain commodities were all reduced in the recent Supply and Demand Estimates released by the USDA.
“We already expected a further reduction in the estimate of the U.S. corn supply, but the cut in the soybean estimate was a surprise,” he said.
He said, however, that the worldwide supply of these grains is in good shape with carry-over stocks above their 20-year average, but there is a “pipeline” problem affecting their short-term supply in the U.S.
“The reduction in U.S. corn and soybean supplies can be offset by production in and exportation from other countries, but there is some concern about whether there will be adequate stocks to comfortably carry the U.S. consumer over until we get more,” he said. “With lower grain production, as the supply tightens the prices will increase — certainly at least in the short-term.
“There also was a small reduction in the wheat estimate, but that may be offset by increased production in Argentina, Australia and elsewhere. Plus, we’ll need to wait and see what happens with the upcoming Russian wheat harvest.”
There also has been a reduction in another significant agricultural commodity, beef cattle, said David Anderson, AgriLife Extension livestock economist. Anderson said cattle numbers will be fewer over the next decade, but the price of corn will dictate the level and spread in calf prices.
"I think we will continue seeing beef production and cattle numbers drop off in the next couple of years," he said. "We are forecast to produce 25.4 billion pounds of beef in 2011 versus 25.9 billion pounds in 2010. That will lead to increases in price, but it also depends on corn prices and (their effect on) calf prices."
Anderson said the first quarter of 2010 resulted in the least amount of beef supplies since 1997, after factoring out exports, and he expects that during each quarter through 2012 the beef supply will continue to decline.
“Overall, beef demand has been hurt by the recession, but has been strong due to consumers ‘trading down’ to stretch their income,” he said. “That's led to more grinding of specific cuts of beef — chucks and rounds — to take advantage of the hamburger demand.”
He added, however, that cull cattle have also been fetching premium prices as a result of the demand for ground beef, and that export markets also continue to grow and show strength, with Vietnam emerging as a top customer for U.S. beef exports, in 2009.
"What I'm suggesting is that booming exports tighten domestic beef supplies even more and should lead to higher cattle prices for the next couple of years," Anderson said. "Supplies keep cutting back because we're not making enough money to build herds back."
Generally, however, the economists agreed that in spite of the commodity increases and the possibility of slightly higher food prices in the future, American consumers can still expect to have adequate supplies of the best and safest food in the world at the lowest overall cost.