Food prices in '09 get aid from cheaper oil, grain

By Christopher Doering

WASHINGTON (Reuters) - U.S. food prices are benefiting from the plunge in grain and oil prices, but consumers could still wind up seeing a 4 percent increase in their grocery bills next year, the Agriculture Department said on Tuesday.

In its monthly report, USDA lowered its food inflation forecast for 2009 by 0.5 percentage point to reflect cheaper prices for meats, eggs, dairy and cereal and baking products. Despite the decline, it would be the third straight year when food prices rose by at least 4 percent.

USDA left unchanged its forecast for food prices during 2008. Currently, prices are expected to rise 5.5 percent this year, marking the largest increase in two decades.

Commodity prices for a wide range of crops have dropped in recent months, after setting record highs this year. Corn, soybean and wheat prices have fallen about 50 percent.

The falling cost of energy -- used to transport, package and process foods -- also has started to make its way into food prices as well. Oil is down about 66 percent from a record $147 per barrel on July 11.

Beef, pork and poultry estimates for 2009 were lowered and are now expected to each rise 3 percent. The forecast for dairy products was reduced to an increase of 2.5 percent, while the rise cereal and bakery items was trimmed to 3 percent.

Consumers spend 12.2 cents of each food dollar on meats, poultry and fish, the highest for any of the main food categories, according to USDA.

A panel of food industry economists said this month that wholesale prices used by foodmakers have risen more rapidly than grocery and restaurant prices, leading to even higher expected costs for consumers in the future.

For now, higher food costs are being felt across the country this week as U.S. consumers prepare to celebrate Thanksgiving.

A survey by the largest U.S. farm group said shoppers will pay 6 percent more for a traditional Thanksgiving meal that includes turkey, stuffing and pumpkin pie.

The American Farm Bureau Federation grocery list of 12 items estimated the average cost of this year's Thanksgiving feast for a family of 10 will cost $44.61, an increase of $2.35 from 2007.

(Editing by Walter Bagley)