Food costs up, but farmers get less
Whether you sit down to steak or to hamburger with steak sauce, plan on paying more for your meal. But you might also consider that even with food prices rising 9 percent this year and perhaps as much as 15 percent next year, the pocketbooks of hard-pressed farmers will not be fattened.
Howard Hjort, chief economist for the US Department of Agriculture (USDA), explains that the expected food price increase over the next year "does not appear to be out of line with the rate of inflation in the general economy."
Goverment figures released Sept. 5 showed a 4.4 percent jump for August in the price of goods reaching grocery shelves, prompting some talk about an "explosion" in food prices. But Mr. Hjort says this jump must be seen in perspective. He points out that "over the past two years we have had a period of declining food prices."
As an example, he cites the case of pork producers. Hogs which brought $55 per hundred pounds in Omaha in February 1979 had dropped to $29 per hundred pounds in April and May this year "when the cost of production was somewhere between $40 and $45 per hundredweight."
Hjort explains that the USDA expects the sharpest rises to come in meat prices because "meat is the area where we have had the best buys over the past years."
And he points out that, although agriculture is no more immune to inflation than any other part of the economy, food prices have not been keeping up with inflation.
Hjort this month is introducing a new system of monitoring farm income to see if it is tune with the rest of the economy. Working with new performance measurements, he already has forecast that farmers' net cash income for 1980 will be down by 10 to 12 percent. Total farm cash receipts of $142 billion, he believes, will be more than offset by the inflationfed increases in the costs of labor and energy.
Rising expenses leave farmers in 1980 receiving only 36 cents out of every dollar spent for food at the retail level. This 36 cents compares to a peak of 45 cents reached in 1973. Yet today's 36 cents must pay for everything from quadrupuled fertilizer costs to trebled interest rates on borrowed money.
Dale Butz, executive director of the commodities division of the Illinois Farm Bureau, says that agricultural prices must edge up now to repair some of the damage caused by years of inflation. "You have to judge prices finally in terms of what the farmer is making in the return on his management and his investment," he insists, "and only in 1973 did it appear that the farmer was making anything near a fair return."
Mr. Butz adds that in his work he records what the supermarket shopper never notices: that while prices go up in response to a variety of factors such as drought, oil prices, and land prices, "food prices also come down."
In line with that is Howard Hjort's prediction that cyclical pressures which are driving beef prices up this year will bring oversupply and a drop in beef prices in 1982.
Forecasts like that aren't much encouragement to Clifton Meador, who farms 2, 800 acres in Dumas. Ark. Prices for his farm products are up now, but his summer's drought will probably leave Mr. Meador with a yield of 10 bushels of soybeans per acre rather than his normal 22 bushels. So he's braced for another year of selling his crop below the cost of production. Since his farm costs are the same for a poor crop as they would be for a bumper crop, or perhaps even higher, slightly higher prices aren't enough to offset far lower yields.
Yet Meador knows from experience what happens in years when crop yields are up: "If it begins to look like farmers are producing a little too much cotton or meat, the price does not go down by just a little -- it plummets."
The USDA forsees farmers earning a slightly better return for their crops next year, with the prospect of losing ground again in 1982. That outlook holds little consolation for Meador, who says that "farmers would need to count on several good years to reduce the terrible burden of debt that we have built up over past years."