Commodity prices and the cost of food

The number of products we use every day that originate in agriculture would probably be a surprise to most of us. Also surprising is the minor impact that the prices farmers get for their raw product has on the cost of a lot of food. Mark Welch is an associate professor and Texas A&M Agrilife Extension Economist and grain marketing specialist.

“When it comes to the grain markets, we have to recognize that that cost component of that grain is a relatively small component of the overall price of food. For instance when we go to wheat. The price of a loaf of bread, less than ten percent of what you pay for a loaf of bread in the grocery store is wheat that is purchased from a farmer.”

Welch says there are many other elements that impact the cost of food to consumers.

“And so ninety percent of that cost are factors other than the price of grain whether the price of grain is high or low. The price of that loaf of bread is set by factors other than what’s going on at the farm. And that would relate of course to energy, to labor, to just the other costs of the business environment.”

Welch says that changes in the economy can have an impact on food prices as well.

“So we could be in a situation where if we’re seeing the U.S. economy and global economy starting to pick up, perhaps interest rates starting on the rise, inflation becoming more of a component again in the U.S. economy, that ninety percent of those other factors could be in a rising price structure related to producing a loaf of bread when the price of wheat is unchanged at all. So whether the price of a loaf of bread goes up or down is not tied as strongly to what’s happening to the price of wheat as many times as we may think.”

So as consumers, we shouldn’t necessarily be celebrating the low prices farmers have been receiving for the last four years. In many cases, it’s only their ability to continue to produce record yields by using all of the technology available to them that’s kept them in business. And that could change with a round of bad weather in any given year.