Prices down at two levels boost retail market
Feb. 17, 2015
Considering all the debate about the far-reaching and untold consequences of the recent precipitous drop in oil prices on the economy as well as consumer spending on items like grain-based foods, it seems ill-advised to neglect what has happened in crop and livestock prices. From the viewpoint of the entire economy, oil’s price decline relates directly to reduced capital investments and cutbacks in employment offset in the minds of many economists by the absolutely dramatic expansion in funds available for consumers to spend.
While not of an equal dimension, but nearly as dramatic, the sharp fall in agricultural prices mainly cuts into net farm income. According to Economic Research Service estimates, net farm income in 2015, forecast at $73.6 billion, is expected to be 32% down from 2014 and would be down 43% from the record of $129 billion in 2013. It would be the lowest net farm income since 2009. The drop stems from lower receipts for crops and livestock and a slight expense gain, offset by a 15% rise in government payments. Receipts from the sale of farmer-owned carryovers will hold the net cash income drop to 22%.
Unlike the oil plunge’s effect in causing sharply lower gasoline prices at retail, the drop in agricultural prices does not relate directly to food price changes. But along with what’s occurred in oil, the retail marketplace is enjoying one of the most favorable cost environments in years. That is especially the case for grain-based foods in one of the best positions to benefit.