New Surge in Groceries

When farmers brought in the most abundant harvest in U.S. history last fall, the Nixon Administration confidently predicted that agricultural supplies would finally be ample enough to slow down the year's runaway food prices. They were right--for a while. But suddenly all of the forces that drove up the cost of eating in 1973 so relentlessly are at work again; foreign demand for U.S. agricultural products is running higher than expected, for example, and the cost of livestock feed has risen sharply. Just for good measure, the energy crisis has added at least one new woe: farmers are currently facing a critical shortage of fertilizers made from natural gas. As a result, consumer food costs now are poised for another big takeoff and will probably keep climbing until midyear.

The full extent of last year's food-price ravages, which caused widespread consumer protests and a celebrated "meat boycott," was made official last week in the Labor Department's annual report on inflation. The cost of living index in 1973 zoomed upward by 8.8%, the biggest annual advance since 1947. Though fuel oil and coal costs rose a stunning 45%, giving a late but powerful lift to living costs, the main villain throughout last year was food prices, which rose 20%. Meat, poultry and fish climbed by an average of 26%, and bakery products and cereals by 28%.

For the outlook immediately ahead, the most ominous sign is that global inventories of grain and other crops--depleted in the past few years because of disastrous growing weather in major producing countries such as Australia and the U.S.S.R.--are still well below normal. To build up their reserves, Europeans, Japanese, Russians and other foreign buyers are continuing to take delivery of huge orders of U.S. farm goods.

These purchases are cutting away so drastically at U.S. supplies that some experts fear that the nation will be hard-pressed to meet its own demands later this year. The Government's best estimate is that less than 200 million bu. of wheat will be left in hand by the end of the marketing year in July, the slenderest reserve since the end of World War II. A strong winter wheat crop, which begins trickling onto the market in late May, would ease the pinch. To boost supplies in the meantime. President Nixon last week lifted import quotas that had been in effect since 1941, thus enabling U.S. customers to bolster their orders of Canadian wheat.

Skimpy Diets. The unrelenting demand for farm goods has also sparked a new round of increases in commodity prices, which in 1973 leaped upward more by far than in any recent year (see chart). Late last week on the Chicago Board of Trade, wheat was selling for $6.16 per bu., up $1.75 from a year ago. and corn was going for $2.86 per bu., v. $1.22. The New York economic forecasting firm of Townsend-Greenspan has estimated that wholesale farm prices in January rose 7 1/2%, the biggest such increase since last August.

To save on costs, some farmers are reducing their herds. In addition, they are buying less expensive grades of animal feed than they normally use. Partly as a result of these skimpier diets, U.S. dairy herds in 1973 produced 3.5 billion fewer lbs. of milk than during the previous year, and despite rising consumer demand milk production is expected to drop another 3 billion Ibs. in 1974. The inevitable result: rising prices.

The item that caused the biggest storm among consumers last year--lean red beef--has lately stayed remarkably stable in price. That is because the nation's meat supply in general has been large ever since early last fall, when ranchers and feed-lot operators rushed to sell animals held off the market during the so-called summer meat freeze. Now that livestock is dwindling, and the cycle has begun to swing toward shortages; Charles Wilson, economic research director for the big Iowa Beef Processors Inc., believes that beef supplies in the next few months may dip by an "almost frightening" 20%. Such cutbacks have already forced up the price of cattle ready for slaughter by 30%, to about 50-c- per lb., and supermarket executives expect to begin passing along the increases almost immediately. But consumers may again balk at buying beef, if it becomes too expensive.

The latest emergency that bodes ill for food prices is the serious fertilizer shortage. Supplies of natural gas, from which many fertilizers are made, have shrunk along with those of fuel. Speaking of a key fertilizer known as anhydrous ammonia, Warren Dewlen, chairman of the Fertilizer Institute, says: "Inventories are only half of what they should be at this time, and the outlook for improving the situation is dim." Some farm experts believe that the lack of fertilizers alone could cut crop yields by as much as 20%, worsening the shortage crunch in raw agricultural products.

That possibility is particularly worrisome, since the Administration's long-range strategy to combat rising food prices is to do everything possible to encourage another record harvest in 1974. A preliminary survey compiled last week by the Agriculture Department showed that farmers do indeed plan to grow more than ever this year. Provided that the weather and other imponderables cooperate, they should harvest some 2 billion bu. of wheat, an increase of 300 million bu. over last year's yield. The jump in corn planting is up 10%, to more than 77 million acres. In fact, the profits on corn are so high that on some farms corn is displacing acreage formerly given over to soybeans, long the superstar among U.S. agricultural products. For the first time in 15 years, land planted in soybeans is expected to decline slightly.

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