November 6, 2004
Food shoppers will see higher prices on many food products for this year's holiday meals in November and December. As a result of higher energy prices, they will also be spending more to gather and prepare the bounty.
Food and beverage prices are increasing at a rate of 3.3% this year, compared to last year's rise of 2.5%. Retail food prices this fall are rising faster than the prices of other goods and services. Grocery store food prices and the prices of food eat away from home are increasing at the same rate. Most of the increases in food prices are a result of higher marketing costs due to high energy costs.
Dairy and cattle prices are the major reason for food price increases this year. The largest price increases are in the dairy sector with butter prices up 28% and milk up 8%. Beef prices depend on the cut; while round roast costs 19% more, chuck roast costs 13% more, round steak 10% more and ground beef only 5% more than last year. Record dairy and cattle prices are the result of reduced supplies and continued strong demand, perhaps due to high protein diets. Food shoppers will see the effects of hurricanes Charley and Frances. Florida orange production will be 27% lower than last year, tangelo production will be 28% lower and grapefruit production as much as 63% lower. Severe October storms in California , following on hurricanes have damaged crops like fresh tomatoes and bell peppers, leading to higher prices for many fresh vegetables.
There is good news for food shoppers. Egg prices are lower; down 8% from last year. In addition, retail prices of bread, flour and peanut butter have also declined.
There will be adequate supplies of holiday-favorite turkeys. Turkey production is about equal to last year's levels, with Indiana as the 7 th largest turkey producer. Wholesale prices for turkey are above last year's level, and whether that translates into higher retail prices depends on individual retailer pricing decisions. The actual price you pay will vary depending on whether you purchase whole or turkey parts; frozen or fresh birds; fresh, precooked, or complete turkey meals; brand names; and the value of store coupons and price specials. More stores are offering free-range and organic turkeys at premium prices. Fresh birds will be priced higher than frozen birds, and the price of fresh birds is more sensitive to increases in wholesale prices. Turkey is often priced as a loss leader, and many stores will feature turkeys at below cost or offer special prices for frequent shoppers or large birds. Retail turkey prices typically fall from August to December as a result of increased supplies and feature pricing.
To complete the traditional Thanksgiving meal, cranberry supplies will be up 6% from last year. While Wisconsin and Washington had slight decreases in cranberry production, Massachusetts and Oregon had substantial increases. Sweet potato supplies should also be abundant with increased production in North Carolina , Mississippi , Louisiana , and California .
It will cost more to prepare and cook Thanksgiving dinner this year. Natural gas prices are 6% higher than last fall, while electricity prices are only 1% higher. And we will be paying about 9% more for gasoline to travel this holiday.
Although Americans eat very well, spending only 10% of their average income for food, there are many this year who find their budgets tightened by unemployment, minimal wage increases, and continued erosion of fixed incomes by inflation. For these, any food price rise is significant. We should remember those who are less fortunate and share our food bounty.
Corinne Alexander, Food Marketing Economist
Department of Agricultural Economics
Purdue University
calexan@purdue.edu
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