Effects of lower commodity prices on food consumers

Yesterday, CNBC ran a story about lower farm commodity prices

As a strong U.S. dollar and bountiful harvest expectations weigh on agricultural commodities, wheat futures have fallen 11 percent this year while live cattle futures are down 10 percent. Meanwhile, soybeans are down 7 percent, corn is down 5 percent, and sugar futures have fallen by 12 percent—a sharp turnaround from just a couple of years ago, when a drought put severe pressure on crop yields.

They asked me what this might imply for the food consumer.  Here's what I had to say.

Still, Americans will not see an equivalent drop in the prices on supermarket shelves, at least not immediately.

”Agricultural commodities are an important component of food prices, but they often comprise a pretty small share of the overall food dollar,” commented Jayson Lusk, a professor of agricultural economics at Oklahoma State University.

Lusk says that the percentage of food prices comprised by the raw materials ranges from as high as 40 percent for beef, to 10 percent or lower for highly processed food products such as those made from corn, wheat and soybeans.

In other words, a 10 percent moves in wholesale oat, sugar, and corn price probably won’t impact the price you pay for a box of Lucky Charms.

Still, “20 to 30 percent [of the overall price made up by agricultural products] does matter, and to the extent those prices fall, we should see lower food prices,” Lusk said.


Taking the broader view, the story for consumers is distinctly positive.

”Americans spend 10 percent of their disposal income on food, which is about the lowest in the world, and lower than at any time in our nation’s history,” Lusk said. “We’re seeing a very long-term trend toward more affordable food for many.”