Food prices to decline in 2009

Three Purdue University agri economists say the factors that caused food commodity prices to go up in 2008 are the same factors that will push prices lower in 2009.

“The three major drivers that we identified last year were trends in global production and consumption, the value of the dollar, and biofuels,” said Wally Tyner, who, along with Philip Abbott and Chris Hurt, released “What’s Driving Food Prices?” this past July. "One of the key questions we asked in doing this new study was, ‘Are these same three that drove prices up the ladder now driving prices down the ladder?’ The answer is yes.”

Tyner and Hurt reported Mar. 11 that a stronger American dollar, falling ethanol demand and rising grain stocks combined to send corn, soybean, wheat and rice prices on a sharp decline in late 2008. Behind those dramatic changes is the global financial crisis, the economists said.

Given time, consumers are likely to see lower prices for some food items, Tyner said.

“It takes a long time for some animal livestock products before those lower commodity prices get filtered into the meat, dairy and eggs,” Tyner explained. “Poultry products are the quickest. For beef it’s the longest time period — up to several years — and for pork it’s somewhere in between. For some meat products, we may be seeing prices now that reflect more what corn and soybean prices were last year than what they are this year.”

The economists said prices for eggs, milk and dairy should continue to fall in 2009, while prices for fruits and vegetables will remain the same or move higher.

What is good news for consumers is not always good news for farmers, according to the economists. Farmers will continue to face high fixed costs but receive less for the agri commodities they sell.

“Had commodity prices stayed high, farmers could have supported those input prices,” Hurt said. “It’s going to be a tight margin year for farmers. They came off of two really good years, but this year is going to be much different.”