Last month I discussed the impact of COVID-19 on availability and prices of food based on data and information we had available at the time. Since then, USDA released its first assessment of U.S. and world crop supply and demand prospects and U.S. prices for 2020/21, and more data on market prices, production, and trade flows during the crisis became available. Of particular note, temporary closures of some meat packing plants have affected meat supply and prices seen by consumers and farmers.
Hence, I want to take another look at food availability and prices in light of the new data and information we have and share with you some insights on market conditions. I will focus on consumer prices and factors driving those prices. Producer prices, which are trending lower in 2020, are subject to somewhat different factors and are beyond the scope of this blog.
What affected food markets over the past few weeks?
Food markets continue to deal with unprecedented and simultaneous shocks to supply and demand that impacted the entire supply chain and caused significant shifts in demand patterns. The most recent report from the U.S. Census Bureau on sales for retail and food services (PDF, 1.9 MB) shows that demand for food at grocery stores has declined from the record levels we saw in March but remains 13 percent higher than same period last year. On the supply side, there have been temporary closures of a number of meatpacking plants and a slower pace of slaughter at others due to COVID-19, which led to tightening supplies of some meat products over the past few weeks. (see USDA press release)
As a result, consumers saw an increase in retail food prices in April, led by meats and eggs. According to data from the Bureau of Labor statistics (BLS), the food price index increased 1.5 percent in April, following a 0.3-percent increase in March. The index for meats, poultry, and fish rose sharply by 4.3 percent and the cereal and bakery index increased 2.9 percent, its largest monthly increase ever recorded by BLS. The food at home Consumer Price Index increased 3 percent from March to April and 0.5 percent from February to March, based on data from yesterday.
But these numbers mask wide variations in price changes across products. For example, prices of ground beef rose by 4.4 percent while prices of boneless beef stew fell slightly. Similarly, bread prices increased by 2.3 percent, but prices of flour rose by less than 1 percent.
The increase in meat prices was mostly the result of declining meat supply following the closures of some meatpacking plants. USDA’s National Agricultural Statistics Service estimates that beef production in April was 20 percent lower than in April 2019, while pork production fell 10 percent below a year earlier. Production of turkey was also down 9 percent, while chicken meat production was about unchanged from a year earlier. With shrinking supplies and subsequent price increases of most meats, consumers turned to different cuts as well as alternative proteins such as eggs, which is a cheaper source of protein. Demand for table eggs rose sharply and so did prices.
By comparison, the increase in prices of cereals and bakery products appear to be entirely demand-driven. Wheat milling operations haven’t been disrupted by the pandemic and many mills are reportedly operating at capacity to meet demand.
Food markets remain well-supplied, disruptions are temporary and limited
The tightening meat supply and food price increases resulted from demand changes and temporary disruptions in supply. They don’t imply long-term food shortages or a fundamental breakdown in the supply chain. Meat supplies have begun to recover as plants have returned to production and are adapting to COVID-19 guidelines for worker safety, and prices of some food products are starting to come down. The most recent weekly reports by USDA’s Agricultural Marketing Service (AMS), show that wholesale prices of many cuts of beef, pork, as well as eggs have stabilized or are beginning to decline. (See most recent weekly reports for beef (PDF, 49 KB), pork (PDF, 31 KB) and eggs (PDF, 125 KB))
Looking ahead, the initial projections for U.S. and global supply and demand of agricultural commodities for the new marketing year 2020/21t, point to abundant supplies and flat prices—both in the U.S. and globally— of agricultural commodities that consumers rely on for everyday food.
In the U.S., stocks for 2020/21 are projected at healthy levels and production is projected higher for all commodities, except wheat, which is projected to fall 2 percent.
For food grains, wheat production is projected at just above 1.8 billion bushels, that’s almost double what we expect to consume domestically for food during the year. Moreover, price of wheat is expected to remain flat in 2020/21. U.S. rice production in 2020/21 is also projected up 17 percent from the previous year, and price is projected down fractionally from last year.
The initial forecast for 2021 meat production is for red meat and poultry production to set a record at 107 billion pounds. (See Table 1)
World supplies of major agricultural commodities are also projected up from last year (See chart 3).
Another important piece of good news is that trade flows have continued mostly uninterrupted throughout the COVID-19 crisis. Trade data show that U.S. food imports for all major categories were up at the end of March, the height of the COVID-19 crisis, compared with a year earlier. U.S. agricultural exports were also up 2 percent from last year.
Market conditions are moving targets
As mentioned earlier, we are dealing with an unprecedented situation, and it’s extremely hard to predict how conditions will evolve and affect supply and prices. But we do know that we have sufficient food supplies and any disruptions will likely be temporary as the industry adjusts to COVID-19. We have also seen that the food system has weathered the impacts of the pandemic very well and as long as trade flows continue unrestricted, consumers in the U.S. and around the world can continue to rely on abundant food supplies.