Full text of Business Trends : Prospective Changes in Food Prices

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E AFTER 9:15 A. M.

Prepared by the Research Department of the

FEDERAL ·RESERVE ·BAN& OF CLEVELAND
Serving the Fourth Federal Reserve District

PROSPECTIVE CHANGES IN .FOOD PRICES
Although retail food costs in general were about
10 percent lower in July than they were a year
earlier, the price of milk, butter, eggs and meat
has been rising again in recent weeks. In some
instances this latest uptrend is only seasonal
and temporary while in others the failure of
prices to continue downward is due to more basic
considerations.
Egg supplies, for example, have been below
average the past three months because fewer
eggs were placed in cold storage last spring. In
fact, the quantity of shell eggs in cold storage
September 1 was the lowest on record. The combined effect of fewer layers on farms, a strong
consumer demand, large hatching-egg requirements, and the Government's support program
maintained egg prices at a level which encouraged current marketing and held down movement
into storage. As a result egg supplies through
July, August and September, were smaller than
last year. Even when all holdings of eggs, including dried and frozen eggs acquired by the
Government in the support program, are considered, the total supply of eggs in storage on
that date was about ¼ less than the average of
the recent five years.

Normally, the price of eggs reaches a peak in
late November or early December. Some oweakness in egg prices the past two weeks together
with a reported rapid rise in farm production
suggests that the seasonal high price may be
reached earlier this year-possibly within the
next 30 days. Egg prices thereafter may be expected to decline to the seasonal low which is
usually reached in late April or May when farm
production of eggs is at a peak. With moderate
expansion in laying flocks occurring and record
supplies of feed grains and by-product feeds, egg
production during the next twelve months may
reach such proportions as to result in a downward adjustment of egg prices comparable to
that which had occurred in meat and dairy products before the latest seasonal rise got under way.
A near-record turkey crop is in prospect. Reports issued recently indicate that production
will approximate 41 million-moderately below
the all-time high of 44 million in 1945 but at least
29 percent larger than in 1948. Prices of this
fowl have slumped to support levels in some areas
in response to anticipated supply.
Poultry meat production due largely to a record output of broilers, has been well above that
of the previous year. As a consequence, the av-

Broadcast by Claude I. Hummel, Agricultural Specialist, Federal Reserve Bank of Cleveland, over
WGAR, Cleveland, with Jim Martin, Morning News Editor, WGAR, Saturday October 15, at 9:15 a.m.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

erage farm price of live poultry was more than
25 percent lower by mid-summer than it was
last year. However, only a small proportion of
this reduction had been reflected at the retail level.
Food grains, the raw material source for most
bakery and cereal products, are in adequate supply even though this year's output of wheat, the
major food grain, was b~low a year ago. A largerthan-average carry-over.. of wheat and a record
outturn of rice this year together with an anticipated decline in foreign requirements indicates
that supplies of these important food grains will
be well in excess of demand. Although the prospect of bountiful supplies of wheat and rice had
depressed farm values below a year ago 8 percent and 31 percent, respectively, by mid-July the
retail price of bread and polished rice still remained at about the level which prevailed a year
earlier.
The quantity of vegetables grown for fresh
consumption, with but few exceptions, has been
below last year. Indicated tonnage of fall crops
is down by about 20 percent. In spite of this
reduction in supply and in contrast with most
other foods, retail prices and farm values have
declined by about the same proportion in the
past twelve months. The downward trend of
fresh vegetable prices in spite of a smaller supply
may be attributed in part to a growing consumer
preference for frozen packaged vegetables due
to convenience in meal preparation.
Aggregate production of vegetables for canning is expected to be about 10 percent less than
in 1948. Unprecedented production of green lima
beans is in prospect, and the expected tonnage
of sweet corn has been exceeded only twice. Tenative estimates of frozen foods indicate a record
to near record pack.
The second largest tonnage of fruit--exclusive
of citrus-is nearly harvested. Of the various
fruits, apples showed the greatest increase over
the previous year. Commercial production exceeding the 1948 crop by 50 percent and the long-

time average by 15 percent now seems assured.
As a result prices of this fruit at the farm are
currently from 25 to 30 percent or more below
what they were at this time last autumn. Because
of harvesting, packaging and marketing costs
some growers have found it unprofitable to harvest all of their crop. Unfortunately the cost of
many of the items that enter into the cost of
transferring the apples from the grower's orchard
to the retail counter have shown no prospect of
declining. In fact, some have actually increased.
As a result a significant reduction in prices of
the product at the farm is not reflected at the
consumer level simply because there are a number of costs incurred between the farm and the
retail market which as yet have shown no evidence of decreasing.
The cost of the quart of milk delivered to city
homes may be used as an example of the condition which exists with respect to many food commodities. The delivered cost of the milk to the
processor currently represents about 50 percent
of the total cost of a quart of milk. In the past
year the cost of the raw product has declined
by about 25 percent. However, the other costs
which go to make up the total cost of that quart
of milk such as transportation, wages and salaries,
containers, fuel, insurance and taxes have registered few, if any, declines and in many instances
have actually increased.
Barring a crop failure of unprecedented proportions or more serious complications in international relations the future trend in farm value
of most agricultural products is likely to be downward. Substantial stocks of several major farm
crops now exist, and prospects are that production
rates for both livestock and crops may be further
increased. Unless history fails to repeat, the
efforts to support prices will do little more than
modify the downward trend. Declining farm
values will of course be reflected in retail prices
only as fast as associated processing and handling
costs decline.

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