Why Food Costs $350/Year for the Average American Household?

There are critical commodities and energy prices that impact global agriculture and grocery prices. It impacts other countries more but it still costs the average american household too. It hits the crops that use the most fertilizer and use the most natural gas. The most important are wheat and corn. You may think well I don’t eat corn. However, farm animals like cows are fed corn. So higher corn prices mean higher costs of meat and milk. Wheat is for bread.

This is based on information from the USDA and other sources. I used AI and search engines to find some data etc… but I already knew about the supply chain and critical commodities. People can go down the rabbit hole with videos talking about corn or natural gas and farming. There is also how natural gas is used for energy and material inputs in practically every factory.

I have a mindmap of how the world works and how changes in supply and prices of critical things (energy etc…) impact the world. This is what every commodities trader knows and they know it far better than I do. Large scale farmers know it. They know their cost of inputs and the global markets. People who run factories know it.

Political leaders should know this. Some who have run major businesses would know this.

I will walk through how the higher commodity prices cost every American household $350 per year. There were three stimulus checks during COVID. ($1200, $600 and $1400 for a total of $3200). Five years of disruption just from food have taken away half of that stimulus. Inflation on everything means we are all far, far worse off. This is mainly about half of the increase in basic groceries (bread, milk, meat and corn based products).

The Ukraine war disrupted fertilizer, natural gas and wheat exports. Ukraine and Russia acting as bread baskets with wheat exports prior to the war.

From February to April 2022, global fertilizer prices jumped nearly 50%, per USDA Economic Research Service data.

Some specific increases:

Urea (nitrogen): Tripled in 2021 pre-war, then rose another 40% post-invasion, peaking at $925 per metric ton in April 2022 (World Bank).

The war’s disruption amplified an already strained market:

Russia and Belarus supplied 40% of global potash and 20% of nitrogen fertilizers. Losing this volume forced importers like Brazil (40% of potash from Russia/Belarus), India, and Sub-Saharan Africa were messed up. Demand and prices went up globally with the ripple effects.

Production Costs: Nitrogen fertilizers, tied to natural gas, saw the steepest rises. Europe, reliant on Russian gas, saw production cuts (e.g., CF Industries curtailed output), pushing prices higher globally. Natural gas price increases causes non-food products to increase in price but that is for another article.

Wheat and Corn

Fertilizer is a critical input for staple crops. It is 35%-45% of operating costs for wheat and corn in the U.S., with similar ratios globally. The price surge rippled through food markets, though impacts varied by crop. Natural gas prices impact crops that need more energy (more later on that).

Fertilizers, rich in nitrogen (N), phosphorus (P), and potassium (K), are critical for many crops, and price spikes hit those with high nutrient demands hardest.

Corn needs 150-250 kg of nitrogen per hectare, plus phosphorus and potassium, making it highly fertilizer-intensive. Fertilizer accounts for 30-40% of production costs, so price hikes significantly raise expenses. Corn is fed to animals. Meat and milk prices rise.

Rice Needs 100-150 kg of nitrogen per hectare, along with phosphorus and potassium.
Significance: Feeds over half the world’s population, especially in Asia.
Cost Effect: Higher fertilizer costs squeeze margins for farmers in rice-dependent regions. Rice prices dipped 8% or rose modestly (25%-30%), cushioned by its production dynamics. rice was less exposed to the fertilizer shock.

Hardest hit Areas
Middle East and North Africa (MENA)

Reduced Ukrainian corn and sunflower oil exports tighten food and cooking oil supplies. High fertilizer costs strain domestic agriculture in food-scarce nations.

Sub-Saharan Africa
Nigeria, Ethiopia, Kenya: High fertilizer costs cut maize and rice yields, while wheat shortages raise food prices, exacerbating hunger.

South Africa: A maize producer, it faces rising input costs, impacting regional food supply.
Corn, rice, soybeans, rapeseed, cotton, and sugar beets face significant cost pressures due to their high nutrient needs.

Regions Hardest Hit: Middle East and North Africa (e.g., Egypt, Turkey, Lebanon), Sub-Saharan Africa (e.g., Nigeria, Kenya), South Asia (e.g., India, Bangladesh), Latin America (e.g., Brazil, Argentina), and Southeast Asia (e.g., Indonesia, Philippines) suffer from a combination of high fertilizer costs and war-driven supply chain disruptions, particularly for wheat, maize, and sunflower oil.

Food prices in the U.S. rose by 9.9% in 2022 and 5.8% in 2023, per USDA data. Fertilizer cost increases contributed about 1-2 percentage points to this inflation (10-20% of the total rise), based on USDA Economic Research Service estimates. For a $4,500-$5,000 annual food budget, overall inflation added $450-$500 in 2022, with fertilizer costs accounting for roughly $100 of that increase but another $250 from natural gas inflation. Corn is a main input for animal feed which impacts meat and milk.

Wheat prices were already up 27% in 2021 due to tight stocks. Post-invasion, Chicago Board of Trade wheat futures hit a 2012 peak, rising 21%-50% from February to March 2022 (UN/World Bank data).

Higher fertilizer prices raised production costs globally. Farmers in the U.S. faced $200/acre increases for corn (comparable for wheat), while in Africa, reduced fertilizer use cut yields. Ukraine’s 2022 harvest dropped 20%-30% due to input shortages, tightening supply further.

Natural Gas

Farm Costs: The Ukraine war drove a 71% increase in natural gas prices (remember the disruption to Europe getting natural gas and the US and Indonesia sending more liquified natural gas thus less supply for US markets and increasing prices) in 2022, pushing fertilizer costs up by 57% and raising total farm production costs for crops like corn by 12-14%.

Food Costs: This led to a 1.8-2.8% rise in retail food prices due to higher farm costs, with indirect energy effects adding 1-2%, for a total impact of 2.8-4.8%. This was a significant portion of the 9.9% food inflation Americans faced in 2022.

With farm production costs up by 12-14%, the direct effect on retail food prices was approximately 1.8-2.8% (calculated as 15-20% of the 12-14% farm cost increase).

Indirect Effects:
Higher natural gas prices also increased energy costs for irrigation, machinery, and transportation, adding an estimated 1-2% to food prices. Combining these direct and indirect effects, the total impact from higher natural gas prices was likely a 2.8-4.8% increase in retail food prices.

In 2022, U.S. food prices rose by 9.9%, according to the Bureau of Labor Statistics. The 2.8-4.8% increase tied to higher natural gas prices accounted for roughly 28-48% of this total food inflation. Other factors, like supply chain issues and labor shortages, also contributed.

Thus normalizing natural gas, fertilizer and wheat would have significant impacts for Americans and particular food and fertilizer importers in Africa and middle east.

Higher natural gas prices from the Ukraine war clearly raised both farm and food costs, though they were one of several factors driving food inflation that year.

Here are the estimated reductions in food budgets if the Ukraine war ends and commodity prices (natural gas, fertilizer, wheat and corn) normalize:

American:
Annual Dollar Savings: $350 per household on and average $7000 per household budget.
Percentage of Food Budget: 5%.

Egyptian:
Annual Dollar Savings: $225 per person.
Percentage of Food Budget: 15%.

Nigerian:
Annual Dollar Savings: $100 per person.
Percentage of Food Budget: 10%.

Normalizing natural gas, fertilizer, wheat, and corn prices, by ending the Ukraine war could provide significant relief to food budgets, with the greatest relative impact in import-dependent countries like Egypt.

People may say well what is $350 per year for groceries?

It is like a month of free groceries. It is like reversing 2 years of food inflation. Bringing prices back down and not just slowing the price increases. Over four years it is $1400 per household which is the size of the largest of three COVID stimulus checks.

It is 10-15% more for people in the middle east and Africa. The US taxpayer would not have to send them $50-100 billion per year in subsidized food or other aid. Which we are doing with debt. We are using our credit card to pay for their food bill and they paying for interest on the borrowed money.

Tax payers are picking up on bills for weapons, higher food and food and other aid to other places. We are pyaing to spill higher priced milk, paying to clean up the milk and paying to replace the milk for others.