Food will get cheaper for Americans, and here's why

Into the futures: Corn & earnings
Into the futures: Corn & earnings   

Good news for America's eaters: Domestic food prices are getting cheaper.

As a strong U.S. dollar and bountiful harvest expectations weigh on agricultural commodities, wheat futures have fallen 11 percent this year while live cattle futures are down 10 percent. Meanwhile, soybeans are down 7 percent, corn is down 5 percent, and sugar futures have fallen by 12 percent—a sharp turnaround from just a couple of years ago, when a drought put severe pressure on crop yields.

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Overall, the S&P GSCI Agriculture index has suffered the worst first quarter since 1982, falling 7.6 percent.

"The consumer should expect to feel some cost relief" due to the declines, said Jonathan Feeney, who covers the food and beverage industry with Athlos Research.

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Still, Americans will not see an equivalent drop in the prices on supermarket shelves, at least not immediately.

"Agricultural commodities are an important component of food prices, but they often comprise a pretty small share of the overall food dollar," commented Jayson Lusk, a professor of agricultural economics at Oklahoma State University.

Lusk says that the percentage of food prices comprised by the raw materials ranges from as high as 40 percent for beef, to 10 percent or lower for highly processed food products such as those made from corn, wheat and soybeans.

In other words, a 10 percent moves in wholesale oat, sugar, and corn price probably won't impact the price you pay for a box of Lucky Charms.

Still, "20 to 30 percent [of the overall price made up by agricultural products] does matter, and to the extent those prices fall, we should see lower food prices," Lusk said.

'Long term trend' favors cheaper food

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It's also potentially great news for the companies that actually buy those raw commodities, especially if consumers don't demand lower prices.

According to Feeney's research, Dean Foods has seen their food costs fall 28 percent year-over-year, and Hormel Foods has seen a 21 percent drop in costs versus last year.

So will the fall in the agricultural commodity prices continue?

Chicago-based trader Jim Iuorio says that between the strong growing season expected for corn and the dollar strength that is weighing on commodity prices more broadly, ag futures should keep falling.

On the other hand, Jodie Gunzberg, the global head of commodities at S&P Dow Jones Indices says that agriculture's correlation to the dollar has eased of late. That "means that factors like weather, inventories and crop yields are more impactful than the US dollar right now," she said.

According to Bureau of Labor Services data, food prices for consumers have been essentially flat lately, with the exception of the dairy and related products category, which saw a 1 percent price drop from January to February.

Taking the broader view, the story for consumers is distinctly positive.

"Americans spend 10 percent of their disposal income on food, which is about the lowest in the world, and lower than at any time in our nation's history," Lusk said. "We're seeing a very long-term trend toward more affordable food for many."


—By CNBC's Alex Rosenberg.

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