Food Price Deflation Cheers Consumers, Hurts Farmers, Grocers and Restaurants

Food price deflation has consumers enjoying big savings at the supermarket, leading more to eat out less often. Farmers, suppliers and grocery chains also are feeling the pinch. Above, shoppers lined up at a 365 by Whole Foods Market store in Los Angeles earlier this year. Photo: Patrick T. Fallon/Bloomberg News

Heather Haddon and

Julie Jargon

Aug. 29, 2016 1:13 p.m. ET

The U.S. is on track this year to post the longest stretch of falling food prices in more than 50 years, a streak that is cheering shoppers at the checkout line but putting a financial strain on farmers and grocery stores.

The trend is being fueled by an excess supply of dairy products, meat, grains and other staples and less demand for many of those same products from China and elsewhere due to the strong dollar. Lower energy costs for transportation and refrigeration also are contributing to sagging food prices, say economists.

“Deflation is a godsend for consumers,” said Bob Goldin, vice chairman of food consultancy Technomic Inc.

Nationwide, the price of a gallon of whole milk on average was down 11% to $3.06 in July over a year ago; the price of a dozen large eggs fell 40% to $1.55 in the same period.

Those great bargains at the grocery store are spreading pain across the Farm Belt. Farmers and ranchers are getting less money for raw milk, cheese and cattle, forcing them to slash spending. Tractor suppliers like Deere & Co. are cutting production due to the farming slump.

Economists and food analysts say the supermarket price declines could last at least through year-end. The drop comes as weaker demand from China is resetting commodities prices in everything from cheese to iron ore. The current food-price slump soon could beat the nine months of year-to-year declines experienced in 2009 and 2010—the longest stretch since 1960, according to the Bureau of Labor Statistics.

The price of food at home is down 1.6% on a seasonally unadjusted basis in the 12 months through July, says the BLS.

Stephanie Hegre, a 46-year-old nanny in Thousand Oaks, Calif., has noticed a drop of about 10% in her weekly food shopping bill. Her 16-year-old twin daughters go through a lot of milk, meat and bread, adding up to an average weekly grocery bill of about $200.

“I feel it has dropped by $20 a week which, when you’re on a budget, is noticeable,” said Ms. Hegre, who has been stockpiling staples in case prices increase. “We freeze bread and buy two weeks’ worth of bacon at a time,” she said.

‘We cannot withstand $4 a bushel corn.’
—Ben Moore, U.S. corn farmer

The glut is so severe in some places that dairy farmers have been dumping millions of pounds of excess milk onto fields. The U.S. Department of Agriculture just bought $20 million worth of cheese in response to hard-hit dairy farmers’ requests. The cheese was given to food banks and others through USDA nutrition-assistance programs.

Ben Moore, a sixth-generation farmer who grows corn and soybeans on some 5,000 acres in Indiana and Ohio, said 2016 is shaping up to be his least profitable year in 20 years. Facing weak crop prices, he is making do with his current tractors and combines rather than upgrading his equipment, and is pushing for lower prices on pesticides, seeds and fertilizer.

On Monday, corn futures, which peaked in 2012 at more than $8 a bushel, closed at $3.11 ¾ a bushel, a seven-year low, on the Chicago Board of Trade.

“We cannot withstand $4 a bushel corn,” Mr. Moore said.

http://www.wsj.com/articles/food-price-deflation-cheers-consumers-hurts-farmers-grocers-and-restaurants-1472490823