The Retired investor: Food Prices May Be Moderating in Some Cases

For more than a year, consumers have been contending with higher food prices. The latest read of April's Consumer Price Index, however, gave some hope that relief may be around the corner.

 

Headline inflation rose 0.4 percent last month but a look under the hood revealed that the "food at home index" declined. This was the second month in a row that prices for fruit, vegetables, meat, and eggs among other items, fell.

 

That may be so, but I certainly am not seeing those price declines in my shopping bill. Let's take eggs for example. You may remember that in December 2022, we were paying as much as $5.46 on average for a dozen eggs. The culprit behind those soaring prices was a historic outbreak of avian influenza or bird flu that coincided with the winter holidays. The epidemic killed millions of egg-laying hens. Since then, influenza has subsided and there have been no new cases detected at commercial farms since December 2022.

 

The industry has bounced back since then and as it has the price of wholesale eggs has fallen. At the end of April, the benchmark Midwest Large White Egg price has fallen to $1.22 per dozen. That is a 78 percent decrease in five months. Some produce analysts expect we could soon see egg prices dip further to below $1 a dozen.

 

The average consumer paid $3.45 for a dozen large Grade A eggs last quarter, according to government data. That is down from January's $4.82, but still more than double the $2.05 the prior year.

 

While this may be good news for some consumers, a trip to my local supermarket tells me retailers have certainly not passed on those price savings to customers. Retailers can sell their eggs at whatever the market will bear. Here in the Berkshires, we are way above the so-called "average" egg prices. At Price Chopper, for example, a dozen cage-free Grade A large eggs are going for $5.39 a dozen, while organic eggs are $8.99. That is a markup of 441 percent and 736 percent.

 

I know there are other costs that retailers need to cover — transportation, labor, etc. — and there is always a lag effect between a decline in wholesale prices and the price we pay at the check-out counter. We could see price cuts in the months ahead for eggs and other products but the jury is still out when it comes to beef.

 

Beef prices remain in the stratosphere. There are reasons for this situation. A continuous and extreme series of droughts in the U.S. in recent years has made maintaining cattle herds expensive or, in many cases, impossible to maintain. Herds (including breeding cows) were slaughtered, which has resulted in a growing scarcity of beef products. This year will be the first significant drop in beef production since 2015. Less beef supply usually means higher prices if demand remains the same.

 

There is some evidence, however, that beef prices may have reached a level where consumers are beginning to cut back on their beef purchases. Tyson Foods, which processes 20 percent of the nation's beef, poultry, and pork, saw its first fiscal quarter net income drop more than 70 percent based on weaker results in all three of those product areas. Analysts believe some consumers are substituting more chicken and pork for beef in their diets. Tyson was caught between higher live cattle prices and less consumer demand and was forced to reduce prices somewhat. Will this trend continue?

 

That remains to be seen. Demand for beef usually picks up about now (during the grilling season), so this summer will be key to determining the consumers' appetite for continued purchases of high-priced hamburgers and steak. If so, we can expect meat processors and retailers to charge even higher prices in the fall and winter for meat. However, if the economy begins to slow, consumers might cut back even more on their spending across the board and that could keep beef prices flat or even slightly lower.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.