WASHINGTON—Food prices could increase by more than 4 percent in 2011 as the farm sector recovers from a sharp downturn in the recession, University of Missouri economists reported to Congress.
An annual MU FAPRI baseline shows net farm income may reach a record $99 billion in 2011. The MU Food and Agricultural Policy Research Institute presented the report to legislators, Monday, March 7.
“After two years of very subdued U.S. food price inflation, food prices may increase by 4.2 percent,” said Pat Westhoff, director of MU FAPRI. “Projected food inflation drops to 2 percent, a level matching overall inflation, after 2012.”
Food prices will rise not only from higher prices paid at the farm level for food grains and livestock, but also recent increases in energy costs.
Oil prices affect not only costs in agricultural production but also for transportation and processing up the supply chain, Westhoff said.
During baseline preparation, oil prices jumped from $88 per barrel to more than $100 in recent days.
Higher prices for grain, oilseed and cotton led the farm economic recovery. “U.S. stocks of corn, soybeans and cotton are very low relative to use in 2010-11,” Westhoff said. “Tight supplies have contributed to higher prices. U.S. wheat supplies are not as low, but wheat prices are supported by corn prices and strong export demand.”
Use of ethanol, a fuel distilled mostly from corn, has increased rapidly, but may dip if fuel tax credits expire as scheduled at the end of 2011.
Higher feed and other input costs along with lower prices during the recession lowered output of meat and milk. At the same time, domestic and international demand remained strong.
“Reduced production, growing exports and population growth combine to limit supplies of meat and milk for domestic consumers,” said Scott Brown, FAPRI livestock economist. “Tight supplies and improving demand initiated price increases in 2010.
“Prices will strengthen for fed steers, feeder calves and hogs,” Brown said. Higher prices at the farm will lead to much higher prices for meat and dairy products for the consumers. High oil prices add to the costs of moving from farm to feedlots to supermarkets.
MU FAPRI warns that tight supplies could lead to volatility in commodity prices.
“For example, an unexpected drop in U.S. corn yields in 2010 led to the rapid increase in world corn prices,” Westhoff said. “With stocks limited, a lot depends on the 2011 corn yields. Prices could be much higher—or lower—than our projections.”