When commodities increase in price it doesn't always reflect in an immediate increase in the finished product. If you look at a price of crude oil prices vs. retail unleaded gasoline you can see that gasoline did not exactly match the increase in crude prices.
The way I read this chart, if gasoline had more closely matched the price of crude on the way up, we would have had gasoline as high as $7-8 a gallon.
I remember earlier this year that many of the big food producers were saying that they had not yet passed on the majority of their increased costs to the consumer. Even though prices had gone up, and package size had decreased, the increased commodity costs had not been completely accounted for. Just like gasoline prices did not drop as quickly as crude oil prices have in the last 5-6 months because refiners and vendors were trying to recoup some of their lost profits, I think that food producers are doing/will do the same.
There is probably a longer lag time involved because it takes longer to plant and grow wheat, and then turn it into Wheaties in a box at the Safeway than it does to take crude oil and make it into gasoline in the tanks at the local Exxon station. There are still a lot of very high input costs that have not worked their way through the system yet. When prices for fertilizer were going up like a skyrocket last year I bet a lot of farmers locked in prices. Nitrogen and Phosphorous are cheaper now, but they haven't fallen as much as crude oil has, and Farmer Brown still needs to make a profit on top of paying for that expensive fertilizer he bought months ago for
this year's crop.
Since feed is such an important input in meat and poultry production, you won't see much reduction in pricing there until
after the grain prices go down.
Demand plays a big part in the pricing as well. There has been a lot of demand destruction in gasoline, but I'm not sure that the same thing has happened in food. I would bet there has been some shifting around (eating at home vs. restaurants, or eating less expensive food, etc.), but I don't think it has been as dramatic as what we've seen in gasoline.
Some prices have fallen. One that caught my eye recently was the price of lobster. I saw lobster at $6 a pound in the store the other day and I now have plans for boiling some up this weekend because that's a darn good price.
Why did lobster get so cheap? Fuel to run the lobster boat is now a heck of a lot cheaper than it was 6 months ago would be my first bet. Other than that, nature takes care of all of the rest of the input costs. The lobsterman just has to go out there and herd them up, or whatever one does to catch lobsters. There is almost no refining/producing costs - just keep them alive in some water until they get to the local lobster shack or you buy some at the grocery store. Given the shape of a number of regional economies, and increasingly the national economy, I would also think that there has been a decrease in demand for luxury foods like lobster either at home or in the restaurants.
I don't expect that food prices will get any cheaper soon, and most of the items I buy at the grocery will probably continue to go up for at least the next 6 months - 1 year.
