Rising energy costs are feeding through every layer of the US food system, from fertilizers and farm inputs to packaging and transport.
This is setting up a new phase of cost push inflation into 2027. But unlike the last inflationary cycle, consumers are more financially stretched, with increasingly polarized spending patterns. This is limiting food companies’ ability to pass through higher costs, shifting more pressure onto margins and product mix.
Current geopolitical and energy market dynamics point to elevated inflation risk across the US food system. We expect mid-single-digit food inflation over the next 12 to 18 months, with baseline monthly ranges of 4% to 6% possible through 2027. The near-term catalyst is energy-driven cost pressure tied to the closure of the Strait of Hormuz, which indirectly pushes up fertilizer, packaging, and logistical costs. Due to uncertainty around the timing and extent of cost pass-through, we express our inflation outlook as ranges. Hedges and longer-term contracts can delay when higher costs show up on shelves and in restaurants, so inflation not realized in one year often rolls into the next as contracts reset and inventories turn. This analysis draws on our 2021 to 2022 inflation cost-stack work, “Project Radar,” which showed that food inflation can stay elevated even after commodity prices cool, and that pressures rotate across cost buckets, creating a more complex margin environment than a simple commodities cycle narrative suggests. Against this backdrop, we expect US food inflation to enter a higher-volatility phase this year, led by energy markets and reinforced by fertilizer, packaging, and logistics costs. Energy matters not only because it raises direct operating costs, but because it lifts the cost floor across the entire system, from farm inputs to processing, cold chain, and distribution. This reinforces a cost-push dynamic that can persist as contracts reset and hedges roll off. The key difference versus our 2021 to 2022 analysis is the consumer. With consumers having less financial cushion and increasingly bifurcated spending patterns – often described as “K-shaped” – companies’ ability to pass through rising costs is constrained. Lower- and middle-income households are more price-sensitive, accelerating trading down, private label substitution, smaller basket sizes, fewer discretionary add-ons, and a “barbell” shift toward trusted value or clearly differentiated premium products and brands. For food and beverage companies, the main risks through this inflationary cycle are margin compression from constrained pricing power, volume losses that accelerate capacity utilization challenges, greater earnings volatility as input costs swing and timing mismatches emerge, and widening performance dispersion across channels, brand tiers, and income cohorts. For companies operating in this environment, the priorities are clear: tighter risk management, stronger supply security, cost reduction, and disciplined pricing. Simplifying operations to build supply chain resilience is also critical. At the same time, companies may need to selectively accept some margin erosion to protect volumes, while continuously reassessing price elasticity to maximize profitability.
US inflation in April reached its highest level in three years, driven in part by the war in Iran. The volume of oil flows affected by the conflict is three times larger than the disruption caused by the Russian invasion of Ukraine, yet many firms – especially in the US – don't seem too concerned. According to our analysts, they should be. Join us for an enlightening, if not light-hearted, discussion about the impact of this crisis and how it affects the economic future for the US, Europe, and the global economy.
USDA’s Food Safety and Inspection Service (FSIS) has finalized a rule eliminating mandatory incision of mandibular lymph nodes and palpation of viscera during post-mortem swine inspections at all federally inspected pork slaughter facilities, including plants operating under both traditional inspection systems and the New Swine Slaughter Inspection System (NSIS).
FSIS said the inspection steps are no longer necessary to ensure food safety because condemnation rates in swine are low and most disease conditions that would warrant condemnation can be identified visually through other pathological changes in carcasses or carcass parts.
The agency first proposed the change in August 2025, arguing that the older inspection methods added labor and processing costs without providing meaningful additional food safety benefits. Industry groups had generally supported the proposal, saying the changes better align inspection practices with modern slaughter operations and current disease risks.
According to FSIS, the final rule will take effect July 20 and is expected to generate annual savings of roughly $7.4 million to $14.7 million for the pork industry, while reducing agency costs by an estimated $2.0 million to $8.4 million annually.
The move continues USDA’s broader effort to modernize meat inspection procedures and shift toward risk-based inspection systems that rely more heavily on visual inspection and plant-level preventive controls.
World Farming Agriculture and Commodity news -25 May 2026
Weekly USDA dairy report
CME GROUP CASH MARKETS (5/22) BUTTER: Grade AA closed at $1.5350. The weekly average for Grade AA is $1.5700 (-0.0685). CHEESE: Barrels closed at $1.4800 and 40# blocks at $1.5050. The weekly average for barrels is $1.5090 (-0.0760) and blocks $1.5405 (-0.0630). NONFAT DRY MILK: Grade A closed at $2.0725. The weekly average for Grade A is $2.1800 (-0.1010). DRY WHEY: Extra grade dry whey closed at $0.6800. The weekly average for dry whey is $0.6860 (-0.0010).
BUTTER HIGHLIGHTS: Stakeholders report steady domestic butter demand throughout the country. Manufacturers continue reporting retail sector activity outpacing food service sector activity. Export demand varies from steady to strong. Stakeholders indicate more challenging transportation logistics due to tighter space availability in shipping lanes and at ports. Cream production is meeting butter manufacturers' needs, but some are purchasing additional spot loads for their butter churns. Butter production is busy ahead of approaching holidays and seasonally tighter summertime cream volumes. 80 and 82 percent butterfat butter loads are available. Bulk butter overages range from four cents below to 5 cents above market across all regions.
CHEESE HIGHLIGHTS: Northeast milk production is strong, with cheesemakers running full schedules on contracted milk. Class III spot milk and condensed skim are scarce. May sales are improving, retail demand is lighter, bulk cheese demand is firm, and export interest exceeds supply. Central milk output is steady and above last year. Cheesemakers are running full schedules. The upcoming holiday is factoring into price variance for spot milk. Domestic demand is stronger and exports remain steady. Western milk production is meeting expectations, but is tight in some areas. Spot milk demand is moderate. Cheese production ranges steady to lighter ahead of the holiday and spot inventories remain tight. Domestic demand is steady while export demand is steady to strong.
FLUID MILK HIGHLIGHTS: Farm milk production varies by region this week. California and some Southern states are experiencing steady to declining milk production while Northern states in the Central and East regions have strong milk volumes. Milk utilization is generally up with most manufacturers scaling up production prior to the upcoming holiday. Class I demand is steady and light. Bottling is expected to lighten as many educational institutions prepare for the summer break. Class II demand is strong. Many ice cream manufacturers are increasing production and as a result, buying spot loads of cream. Class III demand is steady. Class III spot milk is readily available, as many facilities are planning downtime this weekend for the holiday. Class IV demand is steady to strong. Powder production remains very active, as nonfat dry milk and buttermilk powder continue to draw high demand. Butter churns are active but only a handful of facilities are purchasing spot loads of cream. Condensed skim demand is strong and the spot market is active. Buyers are having difficulty finding volumes. Prices range from flat to $0.25 over Class. Cream multiples for all Classes range:1.18 – 1.43 in the East; 1.05 – 1.30 in the Midwest; 1.00 – 1.20 in the West. DRY
PRODUCTS HIGHLIGHTS: Nonfat dry milk prices were mixed this week. In the Central and East regions, price ranges moved higher across all heat levels, though the mostly range for low/medium heat held steady. In the West, low/medium heat prices were steady at the bottom but lower at the top of the range, while the mostly range eased at the bottom and edged slightly higher at the top. High heat prices in the West slipped modestly at both ends of the price range. Dry buttermilk prices varied across all regions, as the lower ends of the ranges moved upward, while the upper ends were steady to slightly lower. top of the Central price range and in the mostly range for the West. Lactose prices eased at the bottom of the price range but strengthened at the top, while the mostly range remained unchanged. Whey protein concentrate (WPC) 34% prices narrowed, as the lower end of the range strengthened and the upper end softened, with the mostly range holding steady. Dry whole milk prices increased at the bottom of the range and were unchanged at the top. Acid casein prices were steady, while rennet casein prices recorded significant gains at both ends of the range.
INTERNATIONAL DAIRY MARKET NEWS
WEST EUROPE: European milk production is expected to contrast further through 2026 as producers and processors continue shifting more milk into higher-value cheese manufacturing rather than fluid products. Despite expectations for longer term contraction in EU milk production, near-term seasonal milk flows remain elevated across several key member states. Average EU milk prices have moved lower in recent months as expanding milk supplies and softer commodity markets weigh on farmgate returns across the region.
EAST EUROPE: Poland continues to strengthen its position in the Eastern European cheese market, supplying nearly 85% of Ukraine's imported cheese volumes. Foot and mouth disease conditions in Greece have deteriorated as additional cases prompted tighter livestock movement restrictions.
OCEANIA and AUSTRALIA: Through the remainder of the season, elevated costs and uncertain conditions may limit milk production. Dairy Australia also announced packaged milk sales data recently. In March 2026, milk sales totaled 204.3 million liters, up 5.6 million liters YoY. Export data from Dairy Australia for Australian milk exports state volumes from July 2025 - March 2026 totaled 130,556 metric tons. NEW ZEALAND: The 2025/2026 season milk price forecast has been revised up from $9.73/kgMS to $9.74/kgMS. New Zealand milk collections surged in April, with 160.5 million kgMS, up 6.9 percent YoY and 4.2 percent above the previous April record.
SOUTH AMERICA: Milk production across Latin America continues posting year-over-year (YOY) gains, supported by generally favorable weather conditions. However, profitability is being negatively impacted by rising energy costs, affecting both corn based and pasture-based feeding systems. For the region, a pullback in demand is expected as consumers respond to rising inflation.
China has lifted highly pathogenic avian influenza (HPAI)-related poultry export restrictions for 17 US states, marking a potentially important breakthrough for the US poultry industry and a sign that Beijing is again adhering to the terms of a 2020 regionalization agreement with the United States.
USDA’s Animal and Plant Health Inspection Service (APHIS) said (link) the change became effective May 15 and applies to Alabama, Alaska, Arizona, Kentucky, Massachusetts, Nebraska, Nevada, New Hampshire, New Mexico, Ohio, Oklahoma, Oregon, Tennessee, Texas, Utah, Virginia and West Virginia. Only poultry products produced on or after May 15 are eligible for export to China from those states.
The move is significant because China had continued blocking imports from states affected by HPAI outbreaks even after they had met the agreed-upon recovery timelines. Under the 2020 Regionalization Agreement, restrictions are supposed to be lifted 90 days after cleaning and disinfection procedures are completed following an outbreak.
Industry groups and USDA officials have argued for months that China was not fully honoring those provisions, creating uncertainty for US exporters and limiting access to one of the most valuable overseas markets for chicken products. The renewed implementation of the regionalization framework could provide a more predictable pathway for reopening trade. Under the agreement, APHIS submits state closeout reports once the 90-day post-cleaning period is met, and China then has five days to review and lift restrictions if appropriate.
Twenty-seven states still remain under Chinese restrictions. However, several key poultry-producing states — including Georgia, Mississippi and Missouri — have recently crossed the 90-day threshold, suggesting additional reopenings could follow in the coming weeks if the process moves as outlined in the agreement.
The development is particularly important for US chicken exporters because China is a major buyer of poultry products that have lower domestic value in the United States, especially chicken paws. Export access to China can therefore materially improve carcass values and overall export returns for the US poultry sector.
USDA Animal and Plant Health Inspection Service and the China appear to be moving back toward the original terms negotiated in 2020, a shift welcomed by the industry. National Chicken Council President Harrison Kircher called the reinstatement of the regionalization framework “a significant development,” adding that restored access could have a meaningful impact on US chicken export volumes. Kircher also credited the Trump administration, USTR and APHIS for pressing China to comply with the agreement’s terms.
Beef prices projected for biggest annual increase in decades while grocery inflation moves above long-term averages
USDA sharply raised its outlook for 2026 food inflation, warning that grocery prices and overall food costs are now expected to rise faster than their long-term averages as consumers continue to face pressure from elevated meat and energy costs.
USDA now forecasts overall food prices to increase 3.4% in 2026, up from a 2.9% estimate in April.
Grocery, or food-at-home, prices are projected to rise 3.2%, compared to the prior 2.4% forecast.
Restaurant, or food-away-from-home, prices are expected to increase 3.5%, slightly below the previous estimate of 3.6%.
The updated projections place both overall food inflation and grocery inflation above their respective 20-year averages of 3% and 2.6%. USDA said the latest grocery inflation outlook is the highest since the agency began issuing 2026 forecasts in July 2025.
A major driver remains beef prices, which USDA now expects to climb 12.1% this year. That would match the surge seen in 2014 and would mark the largest annual increase since 1979, when beef prices jumped 27.4%. Retail beef prices in April alone rose 3.1% from March and were nearly 15% above year-ago levels.
USDA pointed to historically tight cattle supplies as the central factor behind the rally, though it also emphasized that consumer demand for beef has remained resilient despite higher prices. Because beef carries a sizable weighting in the government’s food inflation calculations, the category is expected to have an outsized impact on overall grocery costs throughout the year.
Among the 15 major grocery categories tracked by USDA, nine are now forecast to rise faster than their historical averages, including beef and veal, fish and seafood, fresh fruits and vegetables, processed produce, sugar and sweets and nonalcoholic beverages. Prices for pork, poultry and bakery goods are expected to rise more modestly, while eggs, dairy products and fats and oils are forecast to decline from 2025 levels.
Egg prices are projected to post the largest annual decline in USDA records dating back to 1974, falling 29.8% after surging 21.4% in 2025 amid widespread Highly Pathogenic Avian Influenza (HPAI) outbreaks. USDA said fewer HPAI detections this year, along with improved replacement flock availability, are allowing egg production to recover more rapidly.
The agency also noted that grocery prices still account for roughly 61% of total food spending, compared to about 39% for restaurant spending, underscoring the broader economic impact of sustained increases at supermarkets.
Meanwhile, USDA warned that higher fuel costs could further intensify food inflation pressures if energy prices remain elevated, as transportation and distribution expenses continue filtering through the food supply chain.
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