Food-price increases expected to return to moderate levels

January 02, 1991|By Chicago Tribune

While California's Christmas-week deep freeze will create a spike in oranges and other citrus, the outlook for moderating food prices in 1991 remains on track.

Recession is expected to dampen processing and distribution costs and restrain consumer demand at a time when supply in most categories will be more bountiful than this year.

As a result, food-price increases, as measured by the consumer price index (CPI), are expected to range between 2 and 5 percent next year, returning to the range that prevailed for most of the 1980s, according to an Agriculture Department forecast.

After the 1988 drought, food prices advanced 5.8 percent in 1989, and are expected to average 6 percent higher for 1990, reflecting record meat prices and a 12.4 percent jump in fresh fruit prices after a severe freeze last winter in Florida and Texas.

Larger supplies of farm raw goods will have a strong influence on prices in 1991, according to Ralph Parlett, Agriculture Department economist who specializes in consumer food prices. said the farm value of food, that portion of the consumer dollar that goes to farmers, is expected to average nearly 6 percent less than in 1990.

"If the decline in farm value is totally passed through to consumers, the dampening effect on the food CPI would be nearly 2 percent," he said.

There's no question that the recent California freeze will send fruit prices higher, however, said Parlett. While it's too early to fully assess the damage, he expects it will be enough to raise the range of fresh fruit price increases for all of 1991 to 1 to 4 percent, up from the official forecast of zero to 3 percent.

Parlett noted that ideal growing conditions in Florida this year have produced a bumper citrus crop. On the other hand, a smaller apple crop likely will result in higher apple prices in

coming months.

Fresh vegetable prices also jumped last winter after the Florida freeze, then backed off with the harvest of the spring crops, and are forecast to be up only 4 percent for all of 1990.

The projection for next year ranges from a drop of 1 percent to a gain of 3 percent, although that would point higher if the freeze damaged the California lettuce crop, Parlett said.

A 5 percent increase in the fall potato crop has eased a supply problem and sent prices lower. Still, prices remain above a year ago, reflecting strong demand by processors, particularly for frozen french fries.

At the meat counter, pork prices rose an average of 14.5 percent this year in the face of a 4 percent decline in supply. Despite high prices and cheaper costs for grain, hog farmers hesitated in expanding herds.

A quarterly hogs and pigs report on Friday will provide clues whether and how soon increased pork supplies will appear. Expecting a slight expansion, the department expects retail prices to range between a 1 percent decline and a 2 percent gain.

As for beef, Chuck Lambert, director of economics for the National Cattlemen's Association, noted that per-capita supply dipped about 2 percent in 1990, while retail prices rose by 5 percent. Reasons for the increase included shorter supplies; product improvements, including closer trimming of fat by retailers; increases in exports; and promotion programs.

In its monthly survey of retail beef prices, the trade group found the December average price of five cuts in Chicago was $3.14 a pound, up from $2.97 a year earlier. Nationally, for all of 1990, the average price increased to $3.10 a pound from $2.96 in 1989.

"Poultry and pork output will increase in 1991, and that will tend to keep pressure on beef prices," said Tommy Beall, director of research, Cattle-Fax, market information service. "However, cattle and retail beef prices are likely to average slightly higher." The department's forecast is for a gain of 1 to 4 percent.

Chicken remains the choice for the cost-conscious consumer. Poultry prices were estimated to have eased 1.5 percent this year, and the department projects no increase for 1991 to perhaps as much as a retail drop of 5 percent, as production continues to increase.

Egg prices, up only about 1 percent in 1990, are expected to decline by 5 to 10 percent next year.

Retail dairy prices have started to retreat after a collapse in milk prices paid to farmers since last summer. Michael Hutjens, University of Illinois dairy specialist, cited increased milk production, lower feed costs, fewer cows culled from producing herds and higher cheese inventories.

"These price drops for milk and cheese translate into a roughly 24 to 25 percent drop in income for dairy producers," he said. "For consumers, it may mean changes in grocery store coolers, where milk might drop 20 cents a gallon and cheese 20 cents a pound."

Retail cheese prices have yet to decline much, Hutjens said, but milk prices, at least in featured sales at some locations, have dropped 30 to 40 cents a gallon.

The Agriculture Department forecast, based on low farm prices and increased production, is for consumer dairy product prices to range from a 2 percent drop to a 2 percent gain.

Other increases expected for next year include fish and seafood, 2 to 4 percent; fats and oils, 4 to 6 percent; processed fruits, 1 to 3 percent; processed vegetables, 3 to 6 percent; sugar and sweets, 4 to 6 percent; cereals and bakery products, 4 to 6 percent; and non-alcoholic beverages, 3 to 6 percent.

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