010529 Meat, Milk Prices to Rise As Grain Prices Drop

Washington - Shoppers take note: Don't look for many bargains on meat and milk this year. The government expects prices for U.S. livestock, poultry and dairy producers to rise, even as huge corn and soybean crops will likely push down grain prices.

Fluctuations in grain prices generally have little impact on consumer costs, since the price of raw ingredients generally accounts for only a small part of the cost of processed foods.

That isn't true of meat. Retail beef prices will be higher this year because of “a combination of reduced supplies and the continued demand for the high quality beef cuts,” USDA economist Annette Clauson said.

The Agriculture Department forecast Thursday that cattle prices to average $74 to $78 per hundred pounds this year, up from $69.65 last year. Hog prices are expected to remain steady this year at about $44 to $46 per hundred pounds.

“We're entering a bullish cycle on cattle,” said Don Roose, an analyst with U.S. Commodities Inc.”There's no reason to see we're not going to continue that direction.

Prices for broiler chickens, eggs and milk all are expected to be higher as well.

The department expects retail beef prices to rise 3% to 4% this year. Overall, food prices are expected to increase by nearly 2.5%, less than the overall cost of living, Clauson said.

Vegetables are likely to cost 4% more this year because growers have cut back on acreage, but fruit prices are likely to be down because of overproduction of apples and other crops.

The department had good news Thursday for wheat farmers, estimating that they will earn about $3.05 per bushel this year, up from $2.63 last year, because of shrinking U.S. production and tighter world supplies.

Because of a drought on the southern Plains, this year's harvest of winter wheat is forecast at 1.34 billion bushels, down 14% from last year. It would be the smallest crop in 23 years. Winter wheat is planted in the fall and harvested the next spring.

Corn prices are expected to be flat, at about $1.85 a bushel, about the same as the return on last year's crop. Soybean prices are expected to decline to $4.20 a bushel, down from $4.40 in 2000.

Soybean production is expected to hit a record 3 billion bushels this year, an increase of nearly 8% over last year. Farmers have been planting more soybeans, partly to take advantage of favorable federal subsidies.

The lower prices will be absorbed by taxpayers -- not farmers -- because of government price supports that guarantee grain farmers a minimum price for their crops. The floor for soybeans is $5.26 a bushel. For corn, it's $1.89.

“It's almost nonsensical, but we could keep sending soybean prices down, down, down, but farmers are still guaranteed that they're going to get over $5,” said Bill Nelson, an analyst with A.G. Edwards & Sons.

Rice prices are expected to drop to $5.50 per hundred pounds, down about 10 cents from last year.

The projected price declines likely will increase pressure on Congress to approve a fourth straight year of supplemental farm assistance. Congress has given farmers $25 billion in emergency aid over the last three years, mostly to compensate for a steep drop in grain prices.

Farmers have been cutting back on wheat plantings for several years and switching to more lucrative crops such as soybeans. This year, much of the nation's winter wheat crop is in relatively poor condition.

Oklahoma, which has been especially hard hit by drought, is expected to produce just 97.2 million bushels of wheat this year, down from 142.8 million in 2000. Production in Kansas is forecast at 285.6 million bushels, down from 347.8 million last year.

RETURN TO HOME PAGE

E-mail: sflanagan@sprintmail.com