Grain prices not linked to food inflation

Soaring grain and oilseed prices are not having a big impact on food price inflation in North America, says the chief economist of the United States Department of Agriculture.

Nearby corn and soybean futures prices increased 70 to 80 percent between August 2020 and May 2021 as short crops decreased supply and the COVID pandemic increased demand for the commodities.

But that isn’t causing a big increase in grocery store prices, said Seth Meyer.

That is because the farmer’s share of the food dollar is small, he told delegates attending the International Grains Council’s Grains Conference 2021.

U.S. farmers received an average of 14.3 cents out of every food dollar in 2019.

“It’s a little bit more for meat. It’s a little bit less for things like grains. But in the U.S. it’s quite a small share,” he said.

So when the prices farmers charge for their products goes up it does not result in sticker shock at grocery stores.

“When we see things like a doubling of corn prices over a period of time, that still has a modest effect at a retail level given how small the share is for farmers in that total food dollar,” said Meyer.

Bill Prybylski, vice-president of the Agricultural Producers Association of Saskatchewan, said it is much the same scenario in Western Canada.

“The price farmers receive for their commodities has very little to do with the price that is charged in the grocery store,” he said.

According to the Canadian Federation of Agriculture, an $8 bushel of wheat makes 90 loaves of bread. That works out to nine cents per $3 loaf that goes to the farmer.

“The majority of the costs aren’t coming from the primary producer, it’s in the processing,” said Prybylski.

However, he acknowledged that North America might be a bit of an island in that regard.

The Food and Agriculture Organization of the United Nations reported that global food prices rose in May at the fastest monthly rate in more than a decade.

The FAO Food Price Index was 40 percent higher in May than a year ago due to surging vegetable oil, sugar and cereal crop prices.

Prybylski said that while commodity prices have greatly improved, a wide variety of input costs are also on the rise.

“It is pretty much across the board but particularly in fertilizer and equipment,” he said.

He believes that has a lot to do with the heavily subsidized U.S. farm economy. Equipment and fertilizer manufacturers feel U.S. farmers can absorb the increases.

Canadian farmers are paying those same prices but they haven’t been propped up by direct government payments to anywhere near the same extent as their U.S. counterparts.

“It is a bit frustrating because we compete directly with the Americans on everything we export,” said Prybylski.

Meyer said U.S. farmers have received significant ad hoc government payments starting in 2018 and running through 2021.

A chart of direct government payments dating back to 1985 shows that payments in 2020 were more than US$10 billion higher than any other year.

In 2018, 2019 and 2020 the American government provided farmers with Market Facilitation Program payments to help offset the impact of a trade war with China.

In 2020 and 2021 it added substantial COVID-related payments to the mix that far exceeded the MFP payments.

The good news for Canadian growers is that direct government payments to U.S. farmers are forecast to tumble to $25.3 billion in 2021, down from a record $46.3 billion last year.

“The need for those ad hoc payments is being replaced by dollars from the marketplace,” said Meyer.

Prybylski questions why U.S. farmers needed that level of COVID-related payments to begin with.

“Especially in the grain industry, the effects of COVID were minimal,” he said.

He acknowledged that some livestock and fruit and vegetable growers likely needed support but the total amount doled out to the U.S. farm sector seems excessive.

Prybylski doesn’t fault the Canadian government for failing to provide a similar level of COVID support because he doesn’t think it was warranted.

“But I think the federal government could have done a lot better job in supporting their farmers over the last several years,” he said.

In particular, he thinks Ottawa should have stepped up with support when Canada lost markets in China, Italy and India.