Upward USDA Adjustments in Food Price Forecasts Led by Meats

USDA economists indicate consolidation in meat industry ‘could’ be having an effect
 

USDA food price were increased for several grocery store items in a report today. Forecasts for grocery store meat prices in 2021 were revised up again this month by USDA’s Economic Research Service (ERS), with prices for the combined category of meats, poultry and fish now seen up 4.5% to 5.5%, up from 4% to 5% last month. Link to report.

Meat prices are forecast to rise 5.5% to 6.5%, up from 4.5% to 5.5% in September. Contributing to the increase is what are now expected to be 6.5% to 7.5% higher beef prices compared with an increase of 45% to 6% last month. Pork prices are now expected also be up 6.5% to 7.5% from 2020 levels, up slightly from the forecast range in September of 6% to 7%. Poultry prices are forecast to rise 3.5% to 4.5% versus 3% to 4% in September.

     Beef and veal prices have gone up 6.5% so far this year versus the same period in 2020, with prices in September up 17.6% from year-ago. Pork prices are up 6.3% so far in 2021 vs the same period in 2020 and in September, prices were up 12.7% from year ago. Poultry prices are up 3.8% so far this year compared with the same period in 2020, with prices in September up 6.1% from September 2020.

Factors cited by USDA for the increases. “Prices have been driven up by strong domestic and international demand, labor shortages, supply chain disruptions, and high feed and other input costs,” USDA said. “Winter storms and drought impacted meat prices this spring, and processing facility closures due to cybersecurity attacks impacted beef and other meat production in May.” Interestingly, USDA economists also noted, “Consolidation in the meat industry could also have an effect on prices.” However, the level of consolidation has not changed that much in recent years and prices for meat rose 1.3% in 2019 after rising 7.4% in 2020, but they only rose 0.4% in 2018 and actually declined in both 2016 and 2017.

Grocery store price forecasts for 2021 were also increased for fish and seafood, eggs and fats and oils compared with the outlook in September. “Low imports, labor shortages, and strong domestic demand, particularly within the foodservice sector, have increased prices,” USDA said.

Price forecast adjustments since the first forecast in July 2020: Overall food price inflation is put at 3% to 4% for 2021, with restaurant (food away from home) prices seen rising 3.5% to 4.5% while grocery store (food at home) prices are seen increasing 3.5% to 4.5%. All three forecast ranges are steady with month ago. It takes considerable movement in food price categories to raise the overall food price inflation outlook. USDA has only increased its forecast of all food prices in 2021 twice — June and August — since their initial forecast for a 2% to 3% increase that was issued in July 2020.

Restaurant prices have seen more increases since the July 2020 forecast that 2021 food prices would rise 1.5% to 2.5%. USDA increased its restaurant price outlook in October 2020, and this year adjusted price forecasts higher in April, June and August.

Grocery store prices in 2021 were forecast to rise 1% to 2% in July 2020, with increases made in the outlook in May, June and August. USDA initially forecast beef and veal prices to be down 2.5% to 1.5% in 2021, while pork and poultry prices were to be steady based on the midpoint of the forecast in July 2020.

Bottom line: These higher forecasts for food prices come after 2020 increases that were above the 20-year average for many categories. Prices for all food in 2020 were up 3.4% versus the 20-year average of 2.4%, while food away from home prices rose 3.4% compared with the 20-year average of 2.8%. Grocery store prices went up 3.5% in 2020 against a 20-year average of 2%. Consumers have incurred higher prices over the course of 2021, in some cases when prices were initially forecast to fall. And while USDA has not adjusted their 2022 forecast levels first made in July, the increase in overall food prices of 2% to 3%, restaurant prices of 3% to 4% and grocery store prices of 1.5% to 2.5% will be on top of what have already been above-average increases for 2021. As for the mention that consolidation in the meat industry “could” be having an effect, some observers say that smacks of political influence, with one asking, “That was not a factor when prices fell?”