Sign On By Michael Swanson, Ph.D., Wells Fargo Chief Agricultural Economist
Food inflation has definitely started to slow down, and this is good news for consumers. However, it still won’t be cheaper to celebrate the Fourth of July this year. The reason stems from the current pricing for some of the key menu ingredients. Let’s work our way through the typical cookout menu.
Thrill for the grill
On the grill, we see some interesting behavior and options for the chef. Sirloin steak remains a big-ticket item at $10.75 per pound, up 2.9% from a year ago when it was racing upwards with 14% price inflation. Does this take steak off the menu? Sirloin steak may be back on the menu for the 4 million Americans who have started a new job and those workers now earning higher wages since this time last year.
How about ground beef for those hamburgers? The Bureau of Labor Statistics (BLS) tells us that the current average is $5.36 per pound, up less than 1% from a year ago. That’s a lot of price relief from last year’s inflation rate of 16%. So, it's mixed news in the beef sector. The cattle producers and retailers are doing well, but the processors have seen their margins turn to bitter red ink. Like so many things in agriculture and food, the wheel of fortune never stops spinning, and you should expect a new deal coming around the corner sooner rather than later.
What other proteins might Americans expect to see on the grill? Pork chops are up 1% from a year ago, now priced at $4.19 per pound. The pork industry is struggling with this flat retail pricing as it still feeds last year’s super high-priced corn and soybeans to the pigs. This struggle mirrors the poultry industry’s current situation whereby the high-priced feed forced key market participants to announce losses in the first quarter of 2023. Chicken breasts are currently selling at $4.24 per pound, almost 2% lower than a year ago. Additional price relief will work its way toward the consumer with the recent big drop in corn and soybean prices, but it will take several quarters for this to show up on the consumer’s receipt at the supermarket. Of course, there are two sides to every coin, and America’s crop farmers are bracing for these lower prices to negatively impact their bottom line in 2023.
Eggs-plaining eggs
Another item to think about from the livestock sector are those eggs for the egg salad, potato salad, or deviled eggs. The Avian Influenza shock has just about left the stage. A dozen eggs currently costs $2.67, that's 7% lower than a year ago. While down from $4.82 a dozen at the start of the year, disease risk and inflation remain big issues. The egg industry will also benefit from lower corn and soybean prices, and producers will work to get those hens back in business.
Got milk?
How about the dairy case? Last year saw record strong milk prices at the producer level. This forced the dairy processors and retailers to pass along those high prices to consumers. Milk prices have fallen substantially over the first part of 2023, but this hasn’t yet helped the consumer. Processed cheese to make that hamburger into a cheeseburger is $4.77 per pound, up 10% from last year. And ice cream for the dessert will cost $5.81 for a half gallon, up 9% from a year ago.
Looking ahead, with milk at the farm level dropping from $27 per hundredweight to below $20 per hundredweight, dairy inflation will undergo a major course correction. However, consumers will likely feel this when preparing for the Thanksgiving meal as opposed to the Fourth of July spread.
Breaking down bread, baked goods, and salty snacks
The BLS doesn’t break out hamburger and hotdog buns on a consistent basis, but we can certainly take a cue from the price of bread and other baked goods. The Russian invasion of Ukraine sent the wheat market on a sky-high rocket ride. Since then, the price of wheat has fallen back to earth, but the cost of flour reflects this disruption at the moment. The BLS currently shows bread at $1.95 per pound, which is 22% higher than a year ago. Likewise, a pound of chocolate chip cookies, for the dessert tray, is being priced at $5.15, roughly 14% higher than a year ago.
There are two things to consider here. First, these are big jumps in inflation on a percentage basis, but secondly, approximately $2.00 a pound for bread is still very affordable for most Americans. Like with the rest of the food supply chain, the lower ingredient costs will eventually help the consumer, but it will be a slow trickle down.
Potato chips have seen a big jump as well. Last year’s drought in key growing regions of Idaho and the Dakotas sent potato prices soaring, and this eventually ends up being the consumer’s problem. Potato chips for the celebratory party are currently $6.45 a pound, up 15% from last year. Inflation for potato chips is even higher than the general inflation rate for the catchall category of "other foods" which is currently running at 9%. With this in mind, don’t be surprised to also find dips and condiments about 9% more expensive than last year.
Wise buys for beverages
It would not be a celebration without a cooler full of beverages. Here again, we see variety in both the options and their respective inflation rates. Soft drinks inflation has started to slow, but the industry is still dealing with higher labor and packaging. The average 12-ounce soft drink currently costs 54 cents, up 14% from a year ago. You can save money and conserve packaging by pouring from a 2-liter bottle.
Beer prices have jumped 8% from this time last year with the price for a pint at $1.75. In contrast, wine prices are basically unchanged from this time last year, when they were already showing a price decrease. The BLS says a liter of wine costs $13.40, but you can pay just about any price for wine depending on your palate and wallet.
Parting thoughts
Food retailers and consumers should expect a busy and robust celebration for this year’s Fourth of July, even with higher prices. Job growth and wage improvements will have most ready to celebrate by lighting the grill and chilling with their favorite snacks, foods, and beverages. The most recent data supports the fact that Americans will be out enjoying their mid-summer holiday.
Michael Swanson, Ph.D. is the Chief Agricultural Economist within Wells Fargo's Agri-Food Institute. His is responsible for analyzing the impact of energy on agriculture and strategic analysis for key agricultural commodities and livestock sectors. His focus includes the systems analysis of consumer food demand and its linkage to agribusiness. Additionally, he helps develop credit and risk strategies for Wells Fargo’s customers, and performs macroeconomic and international analysis on agricultural production and agribusiness.
Michael joined Wells Fargo in 2000 as a senior economist. Prior, he worked for Land O’ Lakes and supervised a portion of the supply chain for dairy products, including scheduling the production, warehousing, and distribution of more than 400 million pounds of cheese annually, and also supervised sales forecasting. Before Land O’Lakes, Michael worked for Cargill’s Colombian subsidiary, Cargill Cafetera de Manizales S.A., with responsibility for grain imports and value-added sales to feed producers and flour millers. Michael started his career as a transportation analyst with Burlington Northern Railway.
Michael received undergraduate degrees in economics and business administration from the University of St. Thomas, and both his master’s and doctorate degrees in agricultural and applied economics from the University of Minnesota.
