M6 BARRON’S February 22, 2021

COMMODITIES

Expect Bigger Grocery

Bills as Food Prices Rise

M

ore consumers ate at home

last year because of the pan-

demic, contributing to the

largest yearly rise in food-at-

home prices in nine years.

Food costs are expected to increase fur-

ther in 2021. “This year, food price infla-

tion is certainly a concern,” says Isaac Ol-

vera, lead economist ArrowStream, a

supply-chain technology provider for the

food-services industry.

Food prices in 2020 increased by 3.9%

from 2019, according to the U.S. Bureau of

Labor Statistics (BLS). Prices for the food-

at-home category, where the buyer is the

consumer, also climbed at the same 3.9%

rate last year, the largest yearly rise since

2011.

The U.S. Department of Agriculture

forecasts an increase of 2% to 3% for food

prices this year, compared with a 20-year

historical average increase of 2.4%. Prices

of food-away-from-home—served by res-

taurants and other services—are also ex-

pected to rise by 2% to 3%, while food-at-

home prices are forecast to climb by 1% to

2%, the government agency said.

Food inflation is at almost twice the

Federal Reserve’s inflation target, says Sal

Gilbertie, president and chief investment

officer at Teucrium Trading. Meats and

grains, and grain products such as bread,

show “much higher overall rates of infla-

tion,” he says. BLS data reveal an unad-

justed increase of 5.5% in the meats expen-

diture category from January 2020 to

January 2021.

Gilbertie attributes that higher inflation

rate to the rise in grain prices and the “fail-

ure and subsequent rebuild of China’s hog

herd.” The Chinese had to import huge

amounts of animal proteins to replace the

lack of meat from hog herds hit hard by

African swine fever. Then China imported

grains to feed the hogs as the nation

worked to rebuild their numbers, he says.

Corn and soybean prices are higher this

year. Last year, corn futures climbed by

nearly 25%, wheat was up almost 15%, and

soybeans rose by more than 37%.

China is behind most of the increase for

corn and soybeans, says Olvera. Brazil and

the U.S. supply the bulk of the beans to

China, and last year Brazil essentially ran

out of exportable soybean supplies and

was actually importing them.

Among the biggest reasons for the rise

in food costs last year, however, was the

packing-plant disruptions that left many

meat-processing facilities closed, Olvera

says. “Packing plants were shuttered and

beef, pork, and poultry production were

stunted,” he says, as consumers flocked to

grocery stores to buy up supplies.

Retail food demand this year remains

“robust,” says Olvera, with prices across

the protein complex above year-ago levels.

This year, futures prices for lean hogs have

climbed by more than 20%, while feeder

cattle, or cattle sent to the feedlots, have

seen a slight move higher.

Olvera says the climb in lean hogs this

year is due partly to elevated feed costs.

“Many traders are placing bets on pork

supplies and export expectations,” and the

market is suggesting that “domestic pork

availability may be tight through midyear.”

Feeder cattle prices have come under

pressure on the back of corn price in-

creases. Since corn is used in feed, cattle-

men are likely losing money on feedlot

cattle, says Olvera. There may be fewer

cattle and tighter supplies of beef in the

second half of this year, he says, adding

that he continues to view beef demand as

strong.

Reopening restaurants will be inflation-

ary, as wholesale food supplies will be re-

allocated between retail and food service,

Olvera says, though it’s unknown how

actively consumers will return to restau-

rants in a postpandemic world.

In the long run, “we certainly believe

that the consumer has changed and this

change will force...the food-service indus-

try to become more agile,” he says.B

By Myra P. Saefong

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