Groceries Cheaper, Farmers and Supermarkets Feel the Pain

If you’re just a little irked that gasoline prices have edged up recently, maybe this will cheer you up: Groceries are a bargain.

Average supermarket prices fell 2.2% in September from a year ago, the most since late 2009, and they’ve been down on an annual basis for 10 straight months, the longest such streak since 1959-60, Labor Department figures this week showed.

But while that breakfast of eggs, toast and bacon may not be putting as big of a dent in your wallet, falling prices at the checkout are spreading hardship across the nation’s farm belt and hammering the earnings of grocery chains.

“It’s a very positive thing for the middle-class and low-income households,” says Chris Christopher, an economist at IHS Global insight. “If they can save a bit here or there, they can spend it elsewhere. That’s what we need to keep the economy growing.”

Deals abound. A pound of ground beef cost $3.66 last month, down from $4.13 a year ago. Sliced bacon was $5.48 a pound, down from $5.73. A dozen eggs was $1.47, half the $2.97 year-ago price. And a gallon of milk cost $3.23, compared to $3.40 last year and $3.73 two years ago.

Christopher says many shoppers are using the savings to buy more groceries.

Michelle Morris, 45, of Canton, Mich., estimates her family is saving $10 to $20 a week at the grocery store. As a result, they’re eating out less frequently and Morris is cooking new dishes, including tacos, lasagna and casseroles. “It has increased our family time together,” she says.

Consumers are benefiting from oversupplies of beef, pork, poultry and grains — such as corn, wheat and soybeans — now that farmers have responded to years of skimpy supplies and high prices by ramping up production.

That’s reversing an upward price spiral that began in the late 2000s after the  government mandated that refiners blend ethanol into the gasoline supply. Demand and prices for corn — used to make ethanol — soared, leaving less land for wheat and soybeans and pushing up their costs.

Then Midwest droughts and floods in 2011 and 2012, further bumped up the price of corn and wheat[ — feedstocks for cattle, hogs and chickens. Meat prices spiked as livestock farmers had little choice but to thin their herds. A virus outbreak in the hog population in 2014 moved pork costs still higher. And egg prices doubled a year ago amid an avian flu epidemic.

But starting in 2013, farmers replenished their herds and crops.  About 212 pounds per capita of beef, poultry and pork is expected to be produced in the U.S. this year, up from 200 pounds in 2014, estimates Kevin Good, a senior analyst at research firm CattleFax.

And a record corn crop of 15 billion bushels is forecast amid favorable weather conditions, up from 13.9 billion last year, says Paul Bertels, economist at the National Corn Growers Association.

Worsening the glut was a sharp decline in U.S. agricultural exports last year amid a strong dollar, sluggish global economy and slower demand from China.

Farmers are feeling the effects. Pigs are selling for an average of $97 apiece, about a third of the all-time high of $280 in 2014, according to the National Pork Board. Live cattle is at a six-year low of about 98 cents a pound. And corn futures are at $3.53 a bushel, down from $8 several years ago.

Brad Greenway, a third-generation farmer in Mitchell, S.D., doubled his pig herd to 10,000 about four years ago to increase efficiency and take advantage of lofty prices. Now, he’s losing $20 to $40 per pig, and so is holding off on the purchase of a new truck and turning down the heat in his barn to save a few pennies. Greenway is roughly breaking even on his cattle and soybeans, and losing money on wheat.

“Emotionally, it’s a little draining,” he says, noting he’s able to survive because of the profits he banked in the good times.

With low prices likely to persist at least into early next year, some pig farmers are expected to reduce their herds, says Steve Meyer, economist at EMI Analytics. But most crop growers won’t retrench because they’re  paying rent on land they’re loath to relinquish, Bertels says.

“For a lot of farmers, the options for cutting back are severely limited,” says Nathan Kauffman, agricultural economist at the Federal Reserve Bank of Kansas City.

Supermarkets, which operate on thin margins, are also getting squeezed. Supervalu said this week that second-quarter revenue fell 4.8% as prices tumbled 4% to 6.5% at its two chains. And citing food deflation, Kroger last month lowered its earnings outlook and said it’s cutting capital investments by $500 million in 2016 and 2017.

 

Copyright 2016 WFMY


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