Midway through 2013, food-price inflation hasn’t lived up to the extreme highs agriculture economists had predicted at the beginning of the year.
While it might come as a relief to consumers, the story behind today’s lower-than-expected food prices is a mixed bag for agribusiness in Weld County — a top-10 ag-producer nationally.
Heading into this year, economists with the U.S. Department of Agriculture were calling for food-price inflation in 2013 to nearly double the 2.2 percent seen in average years.
However, in a recent USDA report, economist Ricky Volpe said overall supermarket food prices through May were up only 0.8 percent from where they were a year ago, and were actually down slightly from where they were at the beginning of this year.
Food-price inflation is now expected to be low this year, except when it comes to beef prices, according to Volpe and other economists.
Stemming from the historic 2012 drought, this year’s extreme food-price increases were expected to be seen during the first quarter, and be the highest in meat and dairy products — two of Weld County’s biggest money-makers.
Many dairymen and beef-cattle ranchers were forced to cull their herds during the long dry spell because of high feed prices and feed shortages, and the expected reduction in supply of milk and beef was supposed to send prices of those goods soaring.
For the dairy industry, over production of milk has kept prices from skyrocketing so far this year, according to Bill Wailes, a multi-decade dairy specialist for Colorado State University.
Wailes said U.S. dairymen this year are actually on pace to produce a record 2.3 billion pounds of milk.
“Our dairymen are continually finding ways to become more efficient and produce more milk,” Wailes said. “In some ways, though, they’ve become too efficient.”
The abundance of milk is great for consumers of cheese, butter and all dairy products, but makes profiting tougher for dairymen, who need milk prices to be in the range of about $20 per hundredweight to break even, Wailes said, and in many cases, are only receiving about $18 per hundredweight, because there’s too much milk on the market.
Wailes added that oversupply of milk isn’t an issue locally. The Leprino Foods cheese-processing plant in Greeley can put to use any excess milk produced in Weld County — which ranks in the top 20 nationally for milk production and accounts for about half of Colorado’s dairy cows.
But, because dairymen don’t set their own milk price and instead use one set by the government, Weld County’s dairymen are feeling the effects of overproduction in other regions of the U.S. — since the government’s milk prices reflect the overall oversupply.
For the beef industry, prices have hit record highs in some cases this year, but weaker-than-expected demand and other factors have kept prices from reaching even higher levels that were predicted months ago, according to Stephen Koontz, a Colorado State University agriculture economist and professor.
He said the sharp increases in beef prices toward the end of 2012 and at the very beginning of 2013 may have caused consumers to back off from buying beef — “sticker shock,” as Koontz described it — and that may have led them to purchase other meats, like pork or poultry.
JBS USA’s first-quarter reports — which combine the Brazil-based JBS SA’s beef units in the United States, Australia and now the newly acquired XL Foods in Canada — showed the company lost about $25 million in its beef operations in the first quarter.
That compared to $46.8 million of earnings in pork and $117.7 million in chicken in the first quarter, according to company reports issued last month.
“In expectation of high prices, the retail segment kept beef retail prices at very high levels, which probably shifted demand to other proteins,” said Bill Rupp, president and COO of JBS USA Beef. “At the same time, a strong dollar negatively impacted exports. These market dynamics, along with higher-than-expected beef production numbers, have had a dampening effect on both cattle prices and cattle futures.”
Additionally, the U.S. has seen high levels of beef imports from Australia and New Zealand.
“Clearly, high prices and sluggish demand have made for difficult operating conditions. However, those conditions seem to be normalizing,” Rupp said.
Despite the struggles in beef operations, officials at JBS USA — headquartered in Greeley, and whose beef-packing facility in Greeley slaughters 5,400 head of cattle per day and employs 3,100 people — doesn’t anticipate that jobs will be affected locally.
Volpe and Koontz both said that while beef prices haven’t skyrocketed to once-anticipated levels, they could still get there.
“And so here we are in 2013, where beef prices in many cases are at record highs and are going to continue to climb until the cattle inventories start to really expand to meet demand, which, because of the size of these animals and the cost associated with growing them, probably won’t happen until 2014,” Volpe said.
Koontz said there’s “no flat-out answer” to how much the cost of beef will be for consumers by the end of this year, but added that consumers could see meat prices easily increase by 8-10 percent compared to where they were a year earlier.