Author: Randy Schnepf, Specialist in Agricultural Policy; Joe Richardson, Specialist in Social Policy
Record Midwest heat in June and July (2012) sparked the worst U.S. drought since 1956, causing damage to major field crops. This situation has contributed to record U.S. prices for corn and soybeans in both cash and futures markets in 2012, and has fanned the fears of food price inflation reminiscent of 2008. The heightened commodity price volatility of 2008 and the subsequent acceleration in U.S. food price inflation associated with commodity market shifts raised concerns and generated many questions about farm and food price movements by Members of Congress and their constituents. However, historical evidence suggests that retail prices for processed food products are driven more by consumer demand (strongly linked to general economic conditions), than by price changes in raw commodity markets, although this linkage varies with the degree of raw commodity content in the retail product. For a discussion of the relationship between farm and retail prices, and the major factors influencing retail food prices, see CRS Report R40621, Farm-to-Food Price Dynamics, by Randy Schnepf. This report focuses instead on the nature and measurement of retail food price inflation and its relationship to consumers.