Global prices for commodities such as wheat and sugar have fallen back to where they were a year ago, but consumers are still likely to feel the pinch at the checkout.
The widely watched Food Price Index, produced by the Food and Agriculture Organization of the United Nations, dropped to 135.7 in November, data out Friday showed. The gauge includes cereals, vegetable oils, dairy, meat and sugar.
The index has now fallen for eight straight months after hitting a record in March, when Russia’s invasion of Ukraine sent grain prices soaring. Still, it remains considerably above levels a few years ago.
Meanwhile, moves in commodity markets aren’t feeding into lower prices for households. The latest official data show U.S. food prices at home hit an all-time high in October, up 12% on the year.
Even in less volatile times, commodity price changes can take three-to-six months to filter through to grocery bills, depending on the product and the market. Uncertainty about the outlook for future production is making that relationship murkier than usual, with traders that deal in farm produce reluctant to reduce the prices they charge supermarkets and food companies.
A key reason for elevated checkout prices is that traders aren’t sure how much grain, and of what quality, will be produced next year, said
Joe Glauber,
senior research fellow at the International Food Policy Research Institute in Washington, D.C.
The war in Ukraine, a major grain exporter, has resulted in something akin to a drought, with little planted for the coming year, he said. In addition, Mr. Glauber noted that global wheat stocks haven’t been replenished in recent years, which has also served to lift prices.
World wheat stocks are likely to end the 2022/23 season at slightly under 268 million metric tons, down from 290 million tons two years earlier, the U.S. Department of Agriculture said in November.
Higher energy and power costs are also fueling food-price inflation. “That product on the shelf has a lot of the oil price built in,” said Kathy Kriskey, a commodity strategist at Invesco.
Costlier energy means it costs more to transport and package food, while supermarkets are paying more to power their stores. Higher gas prices also lead to increased fertilizer costs, while wage bills are also rising rapidly.
Supermarkets have more incentive to freeze than to lower prices, Ms. Kriskey added, since that gives them more flexibility if other input costs such as energy rise further in the coming months.
Elevated food prices are always felt most keenly in poor countries, where more of the population is at risk of hunger, higher proportions of budgets are spent on food, and supply chains are more fragile.
“The more complicated the country, the more conflict you have, then prices will be higher,” said Máximo Torero, the chief economist at the U.N. FAO.
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8