The current prices in your grocery store don't signal an approaching storm, but that's exactly what's coming, says Bill Lapp, the former chief economist for ConAgra Foods, who is now the president of Advanced Economic Solutions, a consulting firm in Omaha, Neb.
Lapp estimates that $40 billion in food production costs -- stemming mainly from increased prices of wheat and corn used as human food and livestock feed -- has not yet been passed on to American consumers, though many shoppers have already seen slight increases in their grocery costs. The reality is that even-higher price tags are coming "sooner rather than later," says Lapp. He calls it a "big liability in front of us."
Lapp and other experts cite several reasons for the accelerated rise in grain prices: demand for foodstuffs from developing countries, like China and Brazil; weather events, such as last year's severe drought in Russia, which stretched already tight stocks of grains; a weak U.S. dollar; and a U.S. biofuel policy that taps corn for ethanol, to name a few.
Minyanville wanted to find out what the most common groceries might cost four years from now, in 2015, so we asked Lapp to analyze the major categories of groceries, as defined by the benchmark Consumer Price Index (CPI), and estimate the annual price increase for each. (Read more about our methodology here.)
We then applied Lapp's figures to some current grocery prices in Northeastern U.S. cities, as reported by the Bureau of Labor Statistics. On the following pages, discover what we found.
Bread and cereal
Grocery item: A loaf of bread
Typical price in 2011: $1.85/lb
Estimated price in 2015: $2.16/lb
Predicted annual price increase for all cereal products: 4%
You'd have trouble finding a more popular kitchen staple than a loaf of bread. As many consumers have discovered, the price of bread has already moved up, and not insignificantly -- by 7% in 2010. But the cost of wheat has doubled in less than a year, and the amount we'll need to pay for a standard loaf of bread is set to rise further.
Lapp expects consumer prices for all cereal and baked goods to increase by 3% to 5% annually. That means the average retail cost for a loaf of bread should come in around $2.16 in 2015.
Dairy products
Grocery item: A gallon of milk
Typical price in 2011: $3.30
Estimated price in 2015: $3.86
Predicted annual price increase for all dairy products: 4%
Like the meat industry, the dairy sector is at the mercy of the price of corn for much of its feed costs. So the next few years will be a one-two punch for American consumers of dairy: Higher feed costs combined with rising demand from developing countries is expected to push up the global price for milk, requiring Americans to shell out more for all things dairy at the local store.
Lapp estimates an average annual increase of 3% to 5% across the dairy category, meaning we should see higher prices for cheese, butter, ice cream and more. Currently, a gallon of milk retails for an average price of $3.30. That figure is expected to rise to nearly $4 in four years. It may not seem like a lot, but a bowl of cereal and milk could become noticeably pricier.
Red meat
Grocery item: Ground beef
Typical price in 2011: $3.59/lb
Estimated price in 2015: $4.71/lb
Predicted annual price increase for red meat: 7%
The meat industry has already started to pass along its higher costs to the consumer. In 2010, the price of ground beef went up about 7%, according to the CPI. "We've begun to see the dynamics of that market affecting prices now," says Lapp.
Because of higher feed costs, meat producers have lowered per capita supplies of all proteins, he adds. But export demand from developing countries is strong. Not surprisingly, the U.S. Department of Agriculture forecasts record prices for protein items like beef and poultry, and the price of live cattle already stands at a record high.
Ground lean beef currently averages $3.59 per pound in the Northeast, according to the Bureau of Labor Statistics, and Lapp expects the largest increase in consumer prices to come from meat and poultry, at 5% to 8% annually. If he's right, beef won't be a bargain in 2015, when the same pound may cost close to $5. It could be enough to turn many Americans into vegetarians.
Poultry
Grocery item: Chicken breast
Typical price in 2011: $3.21/lb
Estimated price in 2015: $4.37/lb
Predicted annual price increase for poultry: 8%
The poultry industry has so far adjusted the least to higher feed costs, Lapp says, which means a major correction can be expected. Producers are probably going to bring supply and demand to a point where they can break even and perhaps turn a profit. In other words, consumers are probably in for the greatest sticker shock when they arrive at the poultry section.
American consumers won't have much influence in affecting chicken prices, either. "It's a global market," Lapp explains, and as the newly well-to-do in countries like China, Brazil and India acquire a taste for meat, Americans will have to pay more.Strong export demand is "the risk that stands out to add more fuel to the fire," Lapp says.
A pound of boneless chicken breast averages $3.21 per pound this month, but with an annual increase at the top end of Lapp's range, it could check in at $4.37 per pound in 2015. In New York City, where we recently saw chicken breast on sale for $6.99, the projected annual increase could mean a 2015 price of $9.50 per pound.
It's enough to spell trouble for everything from our own kitchens to high-end restaurants to fast-food places such as KFC and McDonald's.
Fruits and vegetables
Grocery items: Broccoli and bananas
Typical price for broccoli in 2011: $1.91/lb
Estimated price in 2015: $2.15/lb
Typical price for bananas in 2011: $0.60/lb
Estimated price in 2015: $0.68/lb
Predicted annual price increase for fruits and vegetables: 3%
Fruits and vegetables will be the one area where prices shouldn't rise that noticeably. Obviously, grain prices don't figure into their costs; factors like labor, weather, and the price of oil determine the prices of produce. That said, the likelihood of severe weather events because of global warming and consistently elevated crude prices won't do consumers any favors in the produce aisle.
Lapp expects a 2% to 5% annual increase for items that don't rely as much on grains -- everything from fresh produce to frozen dinners and canned products. Take the most basic of these: Broccoli these days sells for $1.91 per pound; with an annual increase of 3%, it will fetch a quarter more than that in 2015. As for bananas, the most popular fruit in the world, the cost shouldn't go much higher than $0.70 per pound, about a dime more than its current price tag.
Vegetable oils
Grocery item: A stick of margarine
Typical price in 2011: $1.24/lb
Estimated price in 2015: $1.51/lb
Predicted annual price increase for vegetable oils: 5%
Besides meat products, the category of fats and oils has seen the largest year-over-year increase (3.8%), as reported by the CPI. Vegetable oils come from many sources, but soybeans make up the standard blend. And the price of soybeans has lifted off since last September, rising nearly one-third.
In addition, vegetable oils aren't used just for cooking; they're also hidden as lesser ingredients in processed foods, so the rise in soybean prices will manifest itself across many different products. Lapp says an annual increase north of 5% wouldn't surprise him.
For margarine, a standard byproduct of fats and oils, expect a stick of the non-butter to cost around $1.50 in four years.
Beer
Grocery item: A six-pack of beer
Typical price in 2011: $5.34
Estimated price in 2015: $6.25
Predicted annual price increase for beer: 4%
In 2015, your burger-and-a-beer special might not be such a bargain anymore. The burger almost certainly will cost a lot more. And the beer?
The process of making beer involves brewing and fermenting mainly cereal grains, namely barley, wheat, corn and rice. The prices of these grains have all skyrocketed, not least because of bad weather in Europe. In addition, the past few years have seen worldwide shortages of hops, a necessary ingredient in brewing beer.
Just as $3 gasoline has become the new norm, in four years you would be hard-pressed to find a six-pack of domestic beer for less than $6. Right now, the retail price for your average six-pack nationwide is $5.34. By 2015, that could go as high as $6.25.
In New York City, a six-pack of Budweiser was recently on sale for $7.49 at a large regional grocer. Shoppers may need to pony up an estimated $8.76 for the same beer in 2015.
For consumers, the specter of higher prices across the board is enough to make anyone sober up.
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