USDA predicts 2%-5% gain in '91

Nation's Restaurant News, Jan 7, 1991 by Patt Patterson

Food prices

USDA predicts 2%-5% gain in '91

Government economists say food prices will increase only 2 percent to 5 percent this year. But other forecasters are not so optimistic.

Some independent economists are forecasting a rise as high as 6 percent, similar to the increase in 1990. The USDA had predicted a 2-percent-to-4-percent increase for last year.

In general, operators could handle an increase of 2 percent to 5 percent in food prices for 1991.

But if the Mideast crisis becomes a shooting war, prices could easily jump far above those figures.

On the other hand, if the Mideast situation is cleared up early this year and the recession intensifies, price increases could be minimal, but customer counts would probably suffer.

Either way, the picture is cloudy. The USDA's Annual Agricultural Outlook Conference, held in Washington in late November 1990, did not address most of those concerns. The agency's economists considered primarily the outlook for domestic supplies, ignoring both domestic and world economic trends, which they felt were not accurately predictable.

The USDA believes food price increases in 1991 are likely to be more moderate than in 1990, rising at a rate of between 2 percent and 5 percent. Despite the cloudy economic picture, the USDA said larger supplies of some major food commodities would work to keep food prices lower. And USDA economists believe a slowdown of the economy will have a depressing effect on food prices.

But unlike food industry analysts, they do not believe that higher oil prices will have a major effect on the cost of processing and distributing foods. Instead, they think that the prices of natural gas and electricity will not be greatly increased by higher oil prices. They do admit that higher motor fuel prices will "likely" make transportation costs rise.

Red meat: The USDA expects red-meat prices to rise in 1991, only by 1 percent to 3 percent.

Red-meat prices hit a record high last year, gaining 7 percent. The USDA had forecast small increases in beef and pork supplies. But both beef and pork production declined in 1990 for the second year in a row.

Beef: The USDA's outlook for beef supplies call for them to remain about the same as in 1990. Other food industry analysts expect the supply of beef to increase over last year's, particularly in the first half of this year. They point to the larger number of cattle placed on feedlots during the final quarter of 1990. In addition, a large fall crop of calves has already increased veal supplies. Prices for U.S. Choice grade are forecast to hold at about the same level as in 1990 (1 percent to 2 percent) or higher.

Pork: The USDA expects pork supplies to increase slightly. That is more in line with what the food industry expects, but it is more conservative than most of the non-government forecasts. Average prices for 1991 are expected to be about the same as in 1990, with possible declines in the last quarter of the year.

Last year's USDA forecast called for a 1-percent increase in pork supplies, with an increase of 1 percent to 3 percent in prices. Instead, they dropped about 4 percent from the 1989 figure, leading to a 14-percent price gain.

Lamb: Outlook for lamb prices this year is for supplies to stay about level with the 1990 figure and with prices increasing only slightly (1 percent to 2 percent) as a result of higher processing and transportation costs. Lamb and mutton production was up somewhat during 1990, but prices dropped despite increased demand.

Poultry: For 1991 poultry supplies are expected to grow, and prices are forecast to drop by as much as 5 percent.

Poultry prices in 1990 averaged about the same as they did the year before. The USDA had expected them to fall by 3 percent to 5 percent. Smaller supplies and higher prices for red meat kept poultry prices from falling. That is not expected to affect poultry this year.

Broiler chickens: Broiler prices are expected to drop about 4 percent to 5 percent this year as production increases 5 percent to 6 percent. Consumption is expected to grow from 1990's 70 pounds per person to 73 pounds in 1991.

Turkey: Even with increased production, turkey prices are expected to remain steady in 1991 because of increased demand. Supplies are expected to grow 5 percent to 7 percent, which would be down from 9 percent in 1990. Turkey prices moved up steadily in 1990. Per-capita consumption is expected to be more than 19 pounds in 1991, up from 18 pounds last year.

Eggs: The USDA expects egg prices to drop by 5 percent to 10 percent this year. For 1991 a modest increase of about 1 percent is expected for eggs.

Egg prices were extremely volatile in 1990. Despite the USDA's prediction of a 4-percent-to-6- percent decrease in prices for the first half of the year and 12 percent to 16 percent in the second half, prices actually averaged about the same as they in 1989. Egg producers were cautious about expanding production and added only 1 percent to capacity.

Dairy products: Dairy prices are slated to decline 1 percent to 2 percent this year. The USDA expects a continued buildup in milk production that should keep pace with increasing demand.