Oil Prices May Drop, But Food & Coffee Will Cost More in 2015

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Oil Prices May Drop, But Food & Coffee Will Cost More in 2015
| published December 28, 2014 |

By Thursday Review staff


Americans and Canadians may be paying a lot less for oil and gas this year, at least for the next several months. Oil analysts expect prices to drop more, and then stay low through at least until the end of March. Some economists, as well as the U.S. Department of Commerce, estimate that the typical U.S. household will save about $1100 over the course of one year if those gas prices stay low at the pump.

The net effect could be a huge injection of economic growth and rebound, especially as those typical families begin to spend that cash on consumer goods, or decide to make purchases which they might have previously deferred out of concern for their pocket book.

But not everything will go down in price in 2015. In fact, Americans—and many Europeans—will see a continuing rise in prices in several areas.

Weather is at the heart of a lot of those price increases. Despite a week of extremely heavy rains and flooding, California is still suffering from its most extended drought in one hundred years. That drought has decimated the Golden State’s normally robust output of food. California is the nation’s largest producer of fruits and vegetables, but because of extreme dry conditions, the state has seen its agricultural output shrink for two years in a row. This year may be its worst ever, that is, unless the Pacific Coast’s weather patterns do not change markedly very soon.

In the meantime, U.S. consumers can expect to pay higher prices for scores of grocery items: strawberries, citrus, and grapes will top the list—three crops affected deeply and adversely by California’s long drought—followed closely by almost all berries and veggies grown commonly in the Golden State. Among the other food items hit hardest by the drought: almonds and walnuts, lettuce, tomatoes, cucumbers, lemons and avocado. According to the California Department of Food & Agriculture, the state’s milk output was nearly $7 billion in 2012 (the most recent year for which its website had totaled annual statistics). Dairy products like milk and cheese will all go up for Americans as a result of California’s sustained drought.

Also as a result of the California drought, Americans will see a marked rise in the cost of flowers and nursery plants and shrubs. Although Florida and Texas also produce many of these products for the big box home stores (Home Depot, Lowe’s), California typically outstrips both the Sunshine State and the Lone Star state when it comes to nursery production. Drought, coupled with severe water restrictions, have made the business of raising shrubs, plants, seedlings and flowers among the riskiest of enterprises this past year for California farmers and growers, and much of the U.S. will see a spike in these costs.

Even those agricultural states not affected by drought got off to a slow start in 2014, when a severe and prolonged winter created setbacks for planting and growing. The winter of 2014 was one of the worst in U.S. history (many states set new records for low temperatures and heavy snowfalls), and in areas like Illinois, Indiana, Ohio, Georgia, Alabama, and Mississippi, traditional harvests were delayed or deeply curtailed. In many states, food prices began their rise as early as last summer, and many economists and commodities analysts suspect that those prices will remain high for much of 2015, as only the Deep South has experienced a mild winter so far in December 2014.

As most Americans and Europeans know by now—especially those who require that first cup of morning joe—coffee prices have risen worldwide. The prognosis is for the price coffee to remain at high levels through the end of 2015, and this can be blamed on a variety of complex problems. For one, a drought even worse than the one affecting California has left Brazil’s normally mountainous output decimated. By some estimates, Brazil produces 30% of the world’s coffee, and an even larger percentage of the coffee supplied to the U.S. market. Brazil’s drought triggered shortages and prices increases throughout 2014, and spurred both grocery stores and retailers (Starbucks, Dunkin’ Donuts) to raise prices.

The market effect of Brazil’s drought was offset to a degree in 2014 by a slight increase in supply from Brazil’s biggest coffee-producing competitors: Vietnam, Indonesia, Ethiopia, India and Uganda. But other coffee-producers—especially those nations which produce the Arabica blend most preferred by Americans and Canadians—faced other serious setbacks, including a leaf-rust disease and a berry-boring pest which plagued vast areas of Nicaragua, Honduras, Columbia, Guatemala, and El Salvador. Both the bug and the leaf rust put a dent in worldwide Arabica output. As a result, everyone will pay a little more for coffee in 2015.

And even though oil prices have been dropping for drivers, 2015 may see a slight rise in the cost of domestic vacations—the result of rising costs for air travel and hospitality. U.S. carriers may continue to trim and reduce flights in an effort to remain competitive, but this will drive the airlines to seek ways to save money or augment revenue in other ways. Business analysts say the add-on costs will surely rise in 2015—extra bags, meals, drinks, amenities of all kinds—and few airlines will make exceptions. With an improving economy and more Americans willing to travel, airlines will have little incentive to lower prices or offer bargains of any kind.

That’s the bad news in a nutshell—a more expensive nutshell, indeed. But there are bits and pieces of good news. Many economists and business analysts say that several things can be expected to go down in price in 2015, in some cases dramatically. Among them: cell phone and smartphones, high-definition TVs and big screen TVs, almost all forms of online entertainment and gaming, and most computer software.

So for those of you who do not want to convert that $1100 in gas savings into the rising cost of food (or you plan to grow your own tomatoes, strawberries and avocado in your yard), happy buying, and enjoy that new smartphone or 4K TV with the fancy 3840 x 2160 resolution.

Related Thursday Review articles:

Oil Prices May Continue to Drop; Thursday Review staff; Thursday Review; December 23, 2014.

New Home Starts Fall in November; Thursday Review staff; Thursday Review; December 16, 2014.