Blame severe weather, production constraints, and other factors. Consumers should prepare for higher bills at the grocery store. According to government data released Tuesday, the food price index rose 0.4% in February, its largest increase since September 2011. The prices consumers paid for meat, poultry, fish and eggs, as well as for fruits and vegetables, saw a particularly steep incline, rising 1.2% and 1.1%, respectively, from January to February 2014.
Beef prices will likely be one of fastest-growing categories of food prices, economists predict. Already, thanks in part to cattle herds that are near 63-year lows and a recent drought in Texas, retail beef prices are near record highs (ground beef prices climbed 5% over 2013) and economists predict they will rise into 2015 or 2016. Kevin Good, a senior analyst at cattle research firm CattleFax, says that steak prices might climb 5% to 10% and ground beef prices 10% to 15% this year.
Roughly 90% of the lettuce grown in the U.S. comes from California and Arizona, says Milt McGiffen, a professor in the Department of Botany and Plant Sciences at the University of California-Riverside. This year, the lettuce crop was impacted by wild weather swings in areas of southern California and northeast Arizona, including several days of below freezing temperatures.
In 2011, when some freezes took place, lettuce prices jumped significantly from January to March. Some scientists blame weather extremes like these on climate change — and companies are taking note. This week, Chipotle filed documents with the Securities and Exchange Commission that said “increasing weather volatility or other long-term changes in global weather patterns, including any changes associated with global climate change, could have a significant impact on the price or availability of some of our ingredients.” They specifically noted that they might have to temporarily suspend items like guacamole and salsa from the menu.
Dairy prices remain high, with some analysts predicting a 10% or more spike for milk. This is thanks in part to increased demand from places like China, as well as slower-than-expected expansion of many dairy farms, says Sterling Liddell, the senior vice president for food and agribusiness at Rabo AgriFinance, a financial institution that lends money to farmers and agricultural businesses. Indeed, we’re already seeing higher prices, as the current farm price for dairy is up nearly 25% from last year.
Pork prices this year are already high — up about 100% over the past five years and nearly 20% year on year — and will likely continue to stay high, says Liddell. This is partially due to the rapid spread of PEDV, or porcine epidemic diarrhea virus, a nasty bug that kills hogs, especially young ones, explains Liddell. “If the new litter is less than 15 days old, the mortality rate is very high,” he says. The decline in volume of pork this year may be up to 10%, he predicts, though an increase in weights of some hogs may make up part of that. “We’ll see even higher pork prices into the summer…in grilling season in July and August,” he says.
California, particularly the Central Valley of California, is currently experiencing a record drought, and that is likely to affect tomato prices, says McGiffen. Indeed, the state produces roughly one-third of the fresh tomatoes grown in the U.S. and puts out a lot of the processed tomatoes too, says McGiffen. That means that consumers may see price increases in tomato sauce, salsa and canned tomatoes, says USDA research economist Richard Volpe; though, he adds that a price hike for processing tomatoes typically takes about six months to a year to trickle down into retail prices for processed foods.
Cheese prices are already up significantly. The price for block cheddar has climbed above $2 per pound — one of the highest levels in years — up roughly 22% from early last year; the price for mozzarella has also climbed steadily. And McGiffen says cheese prices might stay at these higher levels for a while longer. This is thanks in part to higher milk prices.
The supply of hard red winter wheat, which is used to make a lot of bread, is down significantly this year (from about 343 million bushels to 181 million in the U.S.), which may mean that consumers see higher prices on bread, says Liddell. Kansas, Nebraska and Montana, which are the largest producers of this type of wheat, had a dry season, which limited supply. Plus, there is growing demand from Brazil and growers had a hard time competing on price with oil companies for rail space with which to send the grain from farms to mills, he says. However, this sticker shock may be minimized by the fact that the cost of wheat accounts for only an estimated 20% of the cost of bread.
The Central Valley of California is experiencing its worst drought in modern history, and experts say that will likely impact food prices. Hester Jeon, an analyst with IBISWorld, says that prices for tree nuts, including almonds and walnuts, will likely increase this year largely because of the California drought and increased consumer demand; if those prices rise, it could also impact the myriad products made from nuts, including nut butters and almond milk and paste. Indeed, California produces 99% of the country’s walnuts and almonds, according to government data. And walnuts in particular need a lot of water to grow: One walnut requires an estimated 4.9 gallons of water.
Salmon prices are near record highs right now, and some experts think that those increases will continue. Part of this is driven by increasing demand from both the U.S. and Europe and developing countries, which might increase 5 to 10% or more a year, according to the Financial Times. There are also some production issues, including the high price of fish oil, which is used in the pellets that farmers use to feed the salmon.
Grapes and Peppers
The California drought may impact prices for a number of fruits and vegetables, as the state produces roughly half of all the country’s vegetables, fruits and nuts. Because of this, “the drought is a real wrinkle for food prices,” says Volpe. Government data shows that California produces 92% of the U.S. wine grapes, 90% of its strawberries, 49% of its bell peppers and 57% of its chili peppers. Furthermore, fruit and vegetable demand is high: Adults in the U.S. consume fruit about 1.1 times per day and vegetables about 1.6 times per day, according to the CD
Catey Hill covers personal finance and travel for MarketWatch in New York. Follow her on Twitter @CateyHill. This article originally appeared on MarketWatch.com and is reprinted by permission from Marketwatch.com, ©2014 Dow Jones & Co. Inc. All rights reserved.