Behind the Cornucopia of Higher Food Prices

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Food Prices Expected To Rise Significantly In 2014
Justin Sullivan/Getty ImagesA clerk rings up a customer at Cal-Mart Grocery in San Francisco.
By John W. Schoen

Alert shoppers are accustomed to watching food prices go up and down. But a string of forces -- from droughts to diseases -- is raising the cost of a trip to the grocery store at a rapid clip.

And it looks like it will be a while before the price pressure eases.

Some of that pressure is coming from California -- the source of roughly half the nation's fruits and vegetables -- where a long-running drought is forcing farmers and ranchers to cut production. After the driest year on record, large sections of farmland are expected to lay fallow this year as the Golden State copes with an ongoing water crisis

That could have "large and lasting effects on fruit, vegetable, dairy and egg prices," according to a recent USDA report, which said the full impact has yet to be felt.

Smaller cattle herds have forced meat prices higher in March -- up more than 5 percent from a year ago, as demand remained strong despite tightener supplies. Ranchers are getting higher prices for cattle and food companies are able to pass them along.

Pork prices also have been rising after higher feed costs last year forced hog farmers to cut production. The upward price pressure on pork intensified this winter when a deadly virus thinned pig herds. That's expected to bring even higher prices for this summer's grilling season, when demand typically picks up."I think consumer should expect record high meat prices his year," Tyson Foods (TSN) CEO Donnie Smith told CNBC last month. "You should expect to see very high prices for your ground beef, your other meat cuts, all the pork cuts will be higher this year."

Food prices are notoriously volatile, subject to short term spikes and drops based on weather-related shortages and surpluses. But the forces at work this year are longer-lasting.

An ongoing contraction in the U.S. dairy herd, for example, is pushing up retail prices of cheese, ice cream, and other processed dairy foods.

Farm egg prices have been among the most volatile, jumping by 20 percent in February after dropping by 28 percent in January.

U.S. farmers aren't the only ones facing a production squeeze. A drought in coffee growing regions of southern Brazil, the world's largest coffee producer, has pushed up the cost of a cup of Java worldwide. Coffee futures have surged 57 percent this year and rose above $2 a pound last month for the first time in two years.

%VIRTUAL-article-sponsoredlinks%With bacon and coffee prices surging, breakfast is becoming more expensive -- especially if you include a glass of orange juice. Future prices are up 12 percent this year, hitting two-year highs, after Florida's orange crop was hit by an insect-borne disease that's expected to cut yields to the lowest levels in nearly a quarter century. Production could fall by about 15 percent to 114 million boxes this year, according to government forecasts, the lowest level since 1990.The recent series of food price hikes follow a relatively long stretch of stable consumer prices. Since 1990, retail food prices have risen by an average of 2.8 percent a year, according to USDA. From February through December of last year, average supermarket prices fell by 0.2 percent.

Consumers are also coping with higher costs beyond their supermarket shopping cart. After a brutal winter in much of the country kept shoppers home, a pickup in demand has sent clothing and used car prices higher in March.

Rents are also going up in most of the country, up 2.7 percent in the latest 12-months, a pace not seen since the housing market collapsed in 2007. Medical costs are also rising.

Because food prices are typically more volatile than other consumer costs, economists and policy makers at the Federal Reserve usually ignore them when looking at the so-called "core rate" of inflation. But after a long period of inflation running less than 2 percent a year, the latest surge in prices bears closer watching, according to Capital Insight senior economist Paul Dales.

"We suspect that core inflation will rise to 2 percent this year and beyond it next year, which would catch the Fed off guard," he wrote in a recent note to clients.

More from CNBC

12 Ways to Save Money on Food
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Behind the Cornucopia of Higher Food Prices

This advice applies to adults and kids alike. Plan out your shopping list before you head to the grocery store so you’re not tempted by impulse buys, and let any children along for the ride know that you plan on sticking with that list. Small expenditures add up to big money, so try to avoid giving in to any last-minute requests.

If your children continue to insist that you purchase their requested items, then ask them to bring their own piggy bank money. Remind your children they are only allowed to pick something they can afford. It's good practice for grown-up budgeting.

You might not have 20 hours a week to scour multiple publications for the best deals, but if you focus on searching for online coupons, you'll end up saving just as much. Search online for products with the word "coupon" afterward. For instance, if you're looking for Cascade dish soap, search for "Cascade dish soap coupons."

To make sure that you don't waste money on impulse buys, schedule your shopping around paydays. The day or day after you get paid should be your shopping day. Before you go shopping, make a list and make sure it has everything you'll need until the next shopping day on it. Now make a commitment to yourself that you will make what you're going to purchase last until the next shopping day.
Stocking your freezer with frozen meals can help you save money on lunch, since they cost just about $5 each. It can even be a healthier option because they help you practice portion control. Just make sure you're purchasing meals that have no preservatives, and watch out for sodium levels.
Don't waste your time making a sack lunch every day. Instead, prepare a week's worth of lunches on Sunday, and your body will thank you for the extra 10 to 30 minutes of sleep you'll gain each night. If you cook one big meal on Sunday, make sure it's easy to change up throughout the week. Chicken, rice and vegetables all cook quickly and taste great with different sauces and cheeses.
Most families throw away so much food on a weekly basis. A better idea is to turn your dinner leftovers into a lunchtime feast. Apps like BigOven help you use your leftovers to make yummy, new dishes. All you have to do is enter the ingredients you have, and the app will show you different recipe options for your leftovers. You'll save money using food that would have been thrown out.

If you know you have $400 to spend per month on your food budget, that's roughly $100 a week. Whether you shop once or twice per week or use cash or credit doesn't matter as long as you stay within your spending limits. Just be sure to only spend the amount you allotted per week.

Keep your shopping list in a set location so all members of the household can access it. Write estimated prices of the items you are going to buy next to each item on the checklist. It can serve a dual purpose as a price book you can use to guess how much you will spend.
If you've ordered from the kids menu at a restaurant recently, then you know how big the meals are – they're almost as big as meals for adults, and they can cost up to $10 each. If you have multiple children, an easy way to cut down on this expense is to have them share a meal. Not only does this lower the cost of feeding everyone, but it also cuts down on food waste.
Most stores are open late, and without the distraction of announcements, people and maybe even your kids, you can have your own Zen moment. When you are clearheaded, you're more likely to zone in on what you really need and leave out what you really don't. Plus, it's easier to give the cashier coupons without causing any delays for the people in line behind you.

We are a society consumed by all sorts of apps, but if you want to grocery shop, save money and still be lazy, let Favado, an app created by, do the work for you. The app will tell you about items on sale from different stores, and if there is a store coupon or manufacturer coupon, it will also let you know that too. (Of course, you can just use it to scan the weekly ads to keep things simple.) And if you're already glued to your smartphone, it's easy to incorporate into your shopping routine.

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