USDA Report Highlights Complexity of Inflation's Impact on Grain Prices

The impact of inflation on grain prices is complex and influenced by various factors. According to a recent USDA Food Price Outlook, food inflation may cool down in the coming year, but the statistics' fine print shows a wide range of possible outcomes. The government incorporates trends from Consumer and Producer indexes to forecast food price levels, looking at both the average change expected and uncertainty over how widely these changes could vary.

Corn and soybean prices have different relationships with inflation. Year-to-year changes in soybean prices tend to move inversely to Consumer Price Index variations, meaning when inflation is higher, soybean futures typically are lower or even negative. However, corn prices move in the same direction as food prices do.

One reason for this conundrum is that food is only one cause for overall prices to fluctuate. High diesel costs, for example, work into just about all commodities. Fertilizer is made from hydrocarbons, and transporting products costs more, with everything from packaging to processing affected. Crude oil prices have been volatile recently, affecting petroleum values directly.