Food Prices Are Sunny Side Up in 2016

What’s in store for our grocery bill this year? Thanks to cooperative weather, prices of household staples for the kitchen are expected to go up but below the annual average of 2.6 percent.

Breakfast - it used to be so simple. A couple of eggs, some bacon… maybe even a steak sizzling on the griddle. The cost of this traditional morning meal made Americans take notice last year, when the availability and prices of the basic ingredients were significantly impacted by Mother Nature.

For 2016, here’s some appetizing news to enjoy at the breakfast table: Food prices will stabilize. Some may even be surprised to learn that a break in the weather may mean a price break on the horizon.

Warren Graeff, PNC Bank’s agriculture banking market manager, and PNC Economist Mekael Teshome share their insights about the factors that will most affect food prices this year and the size of the bite in your wallet:

POV: What’s your forecast for food prices in 2016?

Teshome: In general, the overall forecast is for food prices to stabilize, with household staples increasing by a modest 2 percent. On average, food prices in the United States increase by 2.6 percent annually. So the outlook is for below-normal increases for food in 2016. This should be good news for consumers who have been watching rising costs at the grocery stores also reflected in rising prices at their favorite restaurants. 

Teshome in Ethiopia
Mekael Teshome (center) with the boards of Bethel Environmental and Agricultural University and Training Center, a non-profit university he is helping to establish in Ethiopia, his birthplace

POV:  Let’s talk about one of the big food price stories from 2015 -- eggs.

Graeff: The phrase “sticker shock” is most often applied to car prices, but it definitely applied to egg prices last year. A dramatic price hike in the Summer of 2015 was sparked by avian influenza, which claimed 10-12 percent of the laying chicken population in the country. The population of laying hens is returning to normal levels. And, egg prices are predicted to remain flat in 2016. 

POV:  Could the January 2016 outbreak of avian flu in the Midwest cause egg prices to increase again?

Graeff: Don’t sound the alarm just yet. The country was declared free of avian influenza in November 2015. However, an isolated outbreak can occur here and there. You can blame migratory fowl - those ducks, geese and swan that fly to Mexico and South America in the winter and then back North in nesting grounds in Canada or the Artic in the spring. Along their migration back and forth, there is a possibility that the wild birds will come into close contact with domestic flocks on our farms and ponds.

U.S. poultry farmers are on alert to mitigate potential issues in order to prevent the situation in 2015 with significant impact to the chicken population.

POV: What about the impact on broiler chickens?

Graeff: Prices for poultry – both chicken and turkey - are stable for now. Any increase in prices would be within the normal range of 2-3 percent. Again, the wild card for the poultry industry comes during those periods when migratory fowl fly over poultry-producing areas, which could impact prices. We just can’t predict those types of events.

POV:  What about the cost of other meat and fish?

Graeff: We expect meat prices overall to increase by only 2-3 percent this year. This is considered the normal adjustment to food prices year over year. Many of us recall the double-digit price hike in beef in 2014 when the Great Plains drought resulted in a drastic thinning of the beef cattle.

The herds are coming back in 2016 and that drives down costs. Pork prices really declined in 2015. A boom in supply will limit pork price increases well below 2 percent. On the other hand, fish and seafood prices are expected to surge, as much as 2.5 percent to 3.5 percent, as demand has boosted prices. 

Graeff at Farm Show
Warren Graeff, shown at a recent farm show, continues to roll up his sleeves to work the family farm on which he was raised, helping his brother by driving tractors, hauling grain and working with livestock

POV: Should consumers expect any food price breaks with the lower gas prices?

Graeff: Not on the production side with farmers. Energy-related costs for farmers are not dominated by fuel costs. The biggest energy expense for farmers involves the manufacturing of fertilizers and chemicals used to produce our food and fiber. No significant decreases have yet trickled down to the farm.

Teshome: On the distribution side, it does cost less today than a year ago in terms of fuel to get the product from the farms to your store. The question is how that impacts the consumer. Fuel costs are one of the contributing factors for our below-normal increases forecasted for food prices in 2016. Lower prices at the pumps puts more cash in consumers’ wallets and greater confidence in spending.

POV: Will the El Nino-related rain in drought-stricken California reduce any food prices?

Graeff: Yes, assuming farmers there will continue to get the beneficial rains that are part of the long-range forecast for California. It is expected to bring agricultural production back in 2016 and boost supplies of fruits, nuts and the other various vegetables grown in California. The one industry not so happy about the rains are the vineyards. Dry weather typically produces a much better crop. 

POV:  Any other food for thought about 2016?

Teshome: The outlook for 2016 is favorable with inflationary increases below normal when it comes to food. Of the 83 advanced nations tracked by the U.S. Department of Agriculture, the United States remains the cheapest place to buy food.  

food prices
While some food costs are expected to rise in 2016, PNC's experts expect overall food price increases will be below the annual average of 2.6 percent
Warren Graeff
Warren Graeff, PNC ag banking 
Mekael Teshome
Mekael Teshome, PNC economist 

Coffee Costs:

Blame dry weather and global warming for that more expensive cup of java. Consumer prices for coffee are expected to increase 5-6 percent into the first half of 2016.

– Warren Graeff

Healthy Confidence:

With the economy gradually improving, people have felt more confident about eating a healthy diet, and consumption patterns tend to reflect the general mood about the economy.

– Mekael Teshome