Four hidden reasons food prices are crazy right now

WASHINGTON – The Bureau of Labor Statistics revealed this month that prices for nearly all food categories at the grocery store have risen at rates not seen since the early 1980s. But shoppers already know that the cost of food has surged alarmingly, from the produce aisle to the meat counter and the freezer section.

Most consumers also know this is being driven by worker shortages, higher fuel costs and lingering supply-chain snarls from the pandemic. But other factors have emerged in recent weeks to push up that grocery bill. Here are four hidden reasons food prices have skyrocketed.

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– The invasion of Ukraine. The war in Ukraine is having a huge impact on the cost of food in the United States – particularly the price of corn. The Chicago Board of Trade corn futures topped $8 a bushel earlier this week, reaching its highest price in nearly a decade.

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The reasons are complex. Earlier this month, in hopes of limiting the spike in gas prices since Russia’s invasion, the Biden administration announced it would allow high-ethanol gasoline to be sold this summer. High-ethanol gas is usually not allowed in summer months because of air pollution. But while the decision may ease some of the pain at the pump, it also contributes to rising food prices.

That’s because corn is used to manufacture the ethanol. That corn would ordinarily be used for consumer goods and, crucially, animal feed. Because feed accounts for 60% of the costs associated with raising livestock, experts expect prices to rise for beef, pork and poultry, and even for some farmed fish.

Skyrocketing fertilizer prices linked to Russia’s war in Ukraine are likely to contribute to higher meat prices in another way. Fertilizer is a significant, and sometimes the sole, source of the carbon dioxide used in the pre-slaughter stunning of animals, said Grady Ferguson, a research analyst for Gro Intelligence. Take that away and slaughter facilities need to find a different mechanism to humanely prepare animals.

But all this pressure could ultimately ease; many American farmers, who had planned to avoid corn this year to shield themselves from high fertilizer prices, may pivot back to reap the benefits of those high corn prices.

“Everything is in flux,” said Lon Swanson, an agribusiness consultant for Wells Fargo.

– The avian flu. The worst avian flu outbreak in the United States since 2015 is causing a major spike in the price of chicken and turkey and an even more noticeable surge in egg prices.

Two months into the outbreak, growers have “depopulated,” or killed, 29 million affected birds, around three quarters of them egg-laying hens, said Courtney Schmidt, a sector analyst in Wells Fargo’s Food and Agribusiness Industry Advisory group who focuses on protein and dairy. The US Agriculture Department’s price for eggs has tripled since November and turkey breast prices are at a record high, she said.

April and May are peak months for avian flu because migration patterns take wild birds over parts of the country dense with poultry farms, their droppings infecting domesticated flocks. Iowa, which is on one of these migratory “flyways,” has been hit the hardest. And egg-producing farms tend to suffer more than those that raise poultry for meat because they are often much larger operations, packing many more birds into tighter quarters.

Schmidt said farmers learned hard lessons in the last major outbreak, instituting new biosecurity measures, but “this has been a little worse than I expected, and I don’t see it recovering quickly. We’re looking at elevated prices through the end of the year.”

– California’s ongoing drought. The federal government operates a system of dams, reservoirs and canals in California that the state relies on for agriculture and drinking water. Water agencies contract with the federal government for certain amounts of water each year. The federal government fulfills the contracts based on how much water is available. This year, as the state’s megadrought drags into its third year, the government said it had no water to give farmers.

As a result, many farmers plan to scale back plantings this year – or expect to plant nothing.

Already, rice growers in the northern part of the Central Valley, where a quarter of the United States’ food is grown, have said they plan to leave their fields fallow, according to the California Rice Commission. California is the nation’s second largest rice-producing state, specializing in medium- and short-grain “sticky rice.”

With less water and higher fertilizer, labor and seed prices, many growers are making the calculation that, even with consumers paying higher prices, they can’t make a profit, said Curt Covington, an executive at AgAmerica Lending.

The solution, he said, can’t just be passing the costs on to consumers, who eventually balk at high prices.

“It’s a balancing act,” he said. “You can ask for a higher price, but at some point, consumers trade down or trade away. And when they trade away, you have fruit sitting in that cooler.”

– Border truck jams. Produce coming from Mexico, stalled at the border for days, has gotten more expensive at a time of year when the United States still relies heavily on imports.

This month, Texas Gov. Greg Abbott, R, increased inspections of commercial vehicles crossing into the state, largely to protest the Biden administration’s immigration policies. He later withdrew the additional requirements – but the delays they caused continue to reverberate.

The increased transit and inspection time at the US-Mexico border caused significant delays to arrivals of produce such as avocados, limes and tomatoes (all, coincidentally, items in high demand in the weeks running up to Cinco de Mayo). Because of these delays, prices for avocados at major wholesale markets have surged to $78 per case, which is $30 per case more than this time last year, said David Rossi, fresh produce analyst at Gro Intelligence.

“While it’s too soon to understand the exact fallout of the latest trade snarl between the US and Mexico, prices can be expected to remain elevated for the next two to four weeks,” Rossi said.

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