Food Prices May Surge as Energy Costs, Trade Uncertainty Loom

The latest Consumer Price Index (CPI) report showed food-at-home prices were flat in August, but this may not be a long-term trend. According to Dr. Ricky Volpe, the Producer Price Index (PPI) shows significant increases in upstream costs facing producers and businesses, which can provide an early warning of pressures that may later reach the shelf.

The PPI showed sizable increases in crude oil, diesel, industrial electricity, warehousing, cold storage, and trucking. These are foundational costs across the food supply chain, and higher transportation expenses can reach retailers within weeks. Higher storage, manufacturing, and agricultural costs take longer to affect prices but will persist for several months.

Trade uncertainty is also a concern, particularly with Canada, which accounts for nearly 40% of U.S. agricultural imports. Tariffs or border disruptions can raise costs directly and reduce flexibility when weather, disease, or other shocks affect domestic production.

Field corn is another important indicator of food prices, as it is connected to at least three-quarters of supermarket products. Corn futures, the corn PPI, and USDA corn reports are valuable signals for the next six to 18 months. Current expectations point to lower yields and stocks and somewhat higher corn prices.

There is a time-lag between these PPI changes and when they impact retail, as corn must be harvested, processed, stored, transported, and incorporated into manufactured ingredients before it reaches a finished product. The lag between an increase in the corn PPI and the retail price can be six, nine, or even 12 months.