Current Edition

current edition

Food Prices Headed South

Written by Dennis Sun

A USA Today article this past week read, “Grocery prices in the U.S. have fallen for eight straight months, underscoring an ongoing food deflation that has supermarkets at war while shoppers reap the benefits.”

The Bureau of Labor Statistics’ Consumer Price Index showed that prices for food we eat at home have fallen by 1.6 percent in July from the same month last year. The article claims that the price of a dozen eggs has dropped about a dollar on average; a gallon of milk has dropped about 40 cents, and a pound of ground beef has dropped by roughly 50 cents. I don’t think the price of beef has dropped nearly as much as the prices have on the hoof, but maybe the drop will be enough to get more consumers to buy more beef and lamb.

They say the reason for the drop is that we keep producing and stockpiling food, even while the demand for it overseas has tapered off. This is especially true in places like China and other eastern countries, where the increasing strength of the U.S. dollar makes American goods more expensive and harder to export. As a result of this overabundance of food, those of us in America could see the longest streak of falling food prices in 50 years. So then we wonder, what will this do for the prices of grain and meat from farmers and ranchers?

They say grocery stores have entered a period that analysts are describing as a “price war.” At least five grocery store chains have claimed that the food deflation has threatened their profits last month, and this includes the giant Walmart.

William Kirk, a food retail analyst for RBC Capital Markets, says that he predicts America is about halfway through its current cycle of food deflation. “It takes a while to work the excess supply out of the system” he said. “You have to eat the cows.”

Well, we all hope it doesn’t take too long.

The U.S. Department of Agriculture (USDA) is now buying up some of the food surplus, such as 11 million pounds of cheese, to reduce a cheese surplus that’s at a 30-year high, and around $12 million in eggs.

USDA is also pushing more cheese these days. While USDA and its My Plate food guide may caution people about eating too many high-fat foods that contribute to obesity, that didn’t stop the agency from helping a number of fast-food restaurants conspire to sell more high-fat foods that contribute to obesity. USDA has created an entity called Dairy Management, with 162 employees to help fast food giants “cheesify” their menus. The Chief Executive of Dairy Management said, “If every pizza included one more ounce of cheese, we would sell an additional 250 million pounds of cheese annually.” Dairy management, while mostly funded by dairy farmers, receives $5.3 million from USDA during one year.

Well, as Peyton Manning knows, there is money in pizza.