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USDA expects only modest increase in 2013 food prices 
By STEVE BINDER
Illinois Correspondent

WASHINGTON, D.C. — Economists with the USDA’s Economic Research Service have revised its original prediction that food prices this year could jump as much as four percent, saying instead they could increase a more modest 2.5 percent.

The lowering last week by the agency’s economists comes amid the reporting of inflation for food and non-food products from March 2012 to March 2013 of one percent, a lower-than-predicted total.
“What we’ve seen now, compared to our original forecasts at the height of the drought last fall, is that commodity prices didn’t increase as much as everyone feared they might,” said Richard Volpe, an economist with the service’s Food Economics Division.
“Overall, the impact of the drought on food prices hasn’t been as significant as first expected,” he continued, noting that despite tough growing conditions, corn production nonetheless was strong. That’s good news for consumer pocketbooks, but nationally some analysts are concerned there is a slight chance that deflation could lead to another economic downtown.

Overall, food prices alone increased about 2.6 percent in 2012 and about 3.7 percent in 2011, according to the USDA.

Volpe’s report for the research service, released at the end of last month, states, “Inflation is expected to remain strong, especially in the first half of 2013, for most animal-based food products due to higher feed prices. For most food categories not directly affected by the 2012 drought, however, inflation is expected to be at or even below normal levels.”

Overall, most food prices during the first quarter of 2013 remained flat, with dairy products and eggs actually decreasing during the period and driving the lower inflation prediction by the USDA.
According to the report, beef prices were up a modest 0.1 percent during March but are 2.7 percent higher than March 2012.
Pork prices were up 0.6 percent during March 2013 over the previous month, but are 1.6 percent lower than March 2012 prices.
Volpe noted that the drought’s impact led to higher-than-normal hog liquidations, which in turn led to immediate lower retail prices. Higher feed prices because of the drought have lead to slowly rising pork prices so far in 2013, he said.

Poultry prices overall were up 0.3 percent during March 2013 but are 3.9 percent higher than in March 2012, with chicken driving the increase at 4.2 percent. Fish and seafood were up only 0.6 percent from March 2013 to March 2012.

Egg prices dropped 1.8 percent during March 2012, but are still up 3.3 percent more than March 2012 prices.

Volpe noted that egg prices are expected to fully reflect the impact of higher feed corn prices sooner than many other food products but are also subject to strong seasonal swings in pricing.
To view the entire report, go to www.ers.usda.gov
5/9/2013