Texas A&M University’s David Anderson discusses the USDA’s 18-month forecast. Grocery prices are likely to stay higher, largely because food and energy costs have outsized influence and can be harder to predict. The discussion emphasizes that forecasts aren’t magic—major shocks like drought, animal disease outbreaks (such as avian influenza), or energy price spikes can shift what happens after the forecast is released—but the modeling still provides a useful planning picture.
Jeffrey H. Snyder, Broadcast Retirement Network
Joining me now is Dr. David Anderson of Texas A&M University. Dr. Anderson, great to see you. Thanks for joining us this morning. Hey, good morning. How are you?
I’m doing okay. How was your, I might as well check in and ask you, how was your Fourth of July?
David Anderson, PhD., Texas A&M University
We had a fun time, got some fireworks, our family was here, hung out with our friends, did all that good Fourth of July stuff, went to the swimming pool for a bit.
Jeffrey H. Snyder, Broadcast Retirement Network
Was the temperature sweltering there, Dr. Anderson?
David Anderson, PhD., Texas A&M University
Boy, it’s hot and humid. It is summertime in this part of Texas.
Jeffrey H. Snyder, Broadcast Retirement Network
Okay. I hope things cool down for you. I did want to kind of broach, I want to maybe, there’s a lot of things I wanted to chat with you about, but let’s start with the USDA forecast.
They issued a fresh forecast on grocery prices over the next 18 months. I guess my first question is, how reliable in the past has this forecast been?
David Anderson, PhD., Texas A&M University
You know, really, I think it’s pretty good. I think it gives us an idea of, they do a lot of statistical modeling, they do projections of where this is going. I think it gives us a pretty good idea of kind of where things are headed.
You know, like any of those kinds of forecasts, events happen that change kind of what happens in the future, whether it’s changes in drought, you know, animal disease outbreaks. Think avian influenza in that regard. Gosh, oil and gas prices spiking, you know, something like that.
Those can often change after a forecast is released. But still, I think it’s a good positive exercise in terms of thinking about planning ahead.
Jeffrey H. Snyder, Broadcast Retirement Network
So to that end, and we just had the 4th of July, there were a lot of news articles about the cost of beef. We’ll get into that in a little bit. But what were some of the key takeaways?
You know, a lot of people obviously complaining about the cost of food, prices at the grocery store, at restaurants, at chains, retail, etc. But what were some of the key takeaways that you saw in this USDA forecast?
David Anderson, PhD., Texas A&M University
Well, I think it just continues where we’ve been lately in terms of higher prices ahead. You know, they do some projections and some of them will follow projections over the consumer price index, sort of that broad measure of inflation that we have. And so certainly going forward, I think there’s some more expectation of that there’s more of that ahead.
Even though we know that say food prices and energy prices do tend to fluctuate a lot more than consumer durable goods and things like that. But still, there’s higher prices, particularly, you know, they’re factoring in higher fuel costs as well. Even though, you know, whether these are going to continue to moderate or go back up is, you know, really, I think a pretty important question in any kind of longer term forecasting.
Jeffrey H. Snyder, Broadcast Retirement Network
Let me ask you about fertilizer. This came up on Monday’s show with Elizabeth Kennedy Trudeau. She’s the managing director of the George W.
Bush Presidential Center. Fertilizer, it’s a big deal in the rest of the country, in the rest of the world. Africa, she named some names.
Is that as big a deal here in the US? Do we have enough fertilizer? And is that expectation of fertilizer availability?
Does that have an impact at all on some of these forecast numbers?
David Anderson, PhD., Texas A&M University
Well, it really does. You know, while we produce fertilizer, particularly nitrogen fertilizer, and anybody who’s a gardener, you know, you don’t have to be a farmer to know about fertilizer, N, P, and K in our fertilizer. We do produce a lot of nitrogen fertilizer.
We produce a lot of natural gas, which is a building block. Beyond that, we import a lot. We do import nitrogen fertilizer.
We import the phosphorus and potassium. Other countries are big producers of those, and so we import those. So from all the way from, you know, farms and ranches that buy fertilizer to your golf course, to your own lawn care, your home garden, you name it, we face higher prices across the board.
So that’s an important factor in the cost of producing food, cost for our farmers and ranchers, and sooner or later, those costs result in higher prices, although it’s more of an indirect effect.
Jeffrey H. Snyder, Broadcast Retirement Network
All right. So I know that one of your areas, you have a lot of areas of expertise, but one of them is in beef prices. I wanted to shift, and we just had the holiday, I kind of alluded to the fact that maybe the cost of a hamburger or a steak or even a hot dog may have gone up.
I want to get your sense for what’s happening in the cattle industry. You know, Americans, whether it’s expensive or not, you know, they like their meat. So what’s the state of the cattle industry and specifically beef and beef prices?
David Anderson, PhD., Texas A&M University
Sure. On the beef side, you know, we continue to be affected by a tighter supply as a smaller cattle herd. And even though today we produce more beef per animal than ever before, we still have tighter supplies overall.
And so, you know, that’s really driving kind of the supply side. We’ve got less beef. A big part of this is the demand side, as you mentioned, you know, gosh, we like hamburgers, we like steaks, we like beef.
And so you put together tighter supplies and growing demand for beef, and what we get are record high prices. And so that’s, you know, really kind of fundamentally, that’s why prices are where they are today. Now, within the year, so that’s the big picture.
You know, within the year, there is some seasonality to production. And we’re getting into the time of year that we seasonally produce more beef. So we produce more beef, it kind of in the summertime than we do in the spring.
And so we’re getting some rising production, still less than it was last year. But compared to the springtime, it’s we got a little more beef. And so that has the potential to at least kind of at least mitigate some of the price increases we’ve seen over time.
But again, overall, we’re producing less beef. And I’ll tell you a lot of that is related to drought. One of the things that’s preventing us from expanding our herds in response to profitable prices is that we have a lot of areas of the country where we produce cattle that are in drought.
And you know, if you don’t have enough rainfall, and there’s not enough grass, it’s really hard to expand cattle herds.
Jeffrey H. Snyder, Broadcast Retirement Network
Let me ask you, this kind of occurred to me, and I’m a lay person when it comes to, I guess, biology. And, you know, I went to high school, and I didn’t know how, but I’m not an expert. So let’s just say that the cow has calves, how long does it take from the birth, so to speak, to that, you know, the calf being born to the point where it’s ready to be processed for consumption?
David Anderson, PhD., Texas A&M University
No, I think that’s a great question, because it really gets at why is this time lag so long? Why can’t we just respond very quickly to high prices and get more beef? And that is because from the time that calf is born to the time it gets to its full grown weight, it goes to a meat packer is about 20 months.
So, gosh, 20 months, that’s almost two years. Now, you know, it gets even a longer lag, because we want to get more cattle, more cows. And so from the time that calf is born, it’s a female calf.
By the time it has its first calf, they typically have their first calf at about two years old, then that calf isn’t at its full grown weight to go to a meat packer for another 20 months. So that gets this lag out to about four years from the time we want to get the market signal to expand. We keep back more of these calves, the female calves, to have more calves themselves.
It’s a long biological process.
Jeffrey H. Snyder, Broadcast Retirement Network
And what’s the, again, I don’t want to go down this, you know, this is not a biology class, but what’s the gestation period? How many calves can a female cow produce over that time? I’m assuming, you know, it’s not like a litter, right?
It’s not like a litter like puppies or kittens or hamsters or gerbils, right? It’s one at a time. So is there, like, how many do they generally produce over their lifetime before they are processed?
David Anderson, PhD., Texas A&M University
Well, we hope that that cow is going to have one calf every year. And so, again, it’s not like other animals with litters. It’s one, and you hope you have one a year.
And then her productive life over her lifetime, she may produce eight or 10 calves over that, over her lifetime, hopefully. She does well and has a long productive life. And so, you would hope for something like that.
So over her whole life, maybe eight or 10 calves, that would be, you know, 10, that’s a fairly old cow. So, but again, there’s a, you’d get some really old productive ones and some young ones that have reached the end. And so there’s a possibility there.
Jeffrey H. Snyder, Broadcast Retirement Network
Yeah, it’s not like human, very non-analogous to human baby production. All right, let’s, I want to skip over this. It was not my intent to have a biology lesson for the audience, but I think it’s important because people always say, why can’t you do more?
Well, you can do more, but biology takes over. So I want to ask you about the settlement on egg prices, because we have talked to you, I don’t know, several years ago, there were really high prices with eggs. And I guess the Department of Justice settled with, I guess, I don’t want to call them egg manufacturers, but there were maybe some colluding going on in terms of the egg prices.
I’ll let you take it from there, doctor.
David Anderson, PhD., Texas A&M University
Well, that was the accusation is that these, that several large egg producers were colluding to drive up prices to their buyers. They may not sell directly to us consumers, but maybe to a grocery store or restaurant chain, which drives up prices to all of us. That was the accusation.
They settled, the Justice Department settled with those companies. I, you know, it’s interesting. I am not involved in any of that litigation.
So I, you know, I might say, well, gosh, I have no idea. But like a lot of these things, what does that settlement mean in terms of, you know, nobody accepted or put any fault on anything, but we’ve settled. Whatever that means in terms of- Sometimes, you know, people settle just to make it go away and move on.
Obviously no one, it didn’t go to trial. So no one made their case in court, but there’s a settlement. You know, I think we went through this really high time period, really, really sharply higher, record high egg prices.
And I think it’s only natural that we look for a cause. We have relatively few, really big egg producers. So that might lead us to think, well, is there something, some funny business going on?
It’s, you know, I think it’s hard to tell because within this, we have this backdrop of avian influenza, which wiped out millions of our egg laying chickens. It drove our supplies down very quickly. And because of that, with much tighter supplies, the demand for eggs is still there.
And we ended up with record high prices. And if you think about it, if I’m somebody buying for a restaurant chain or a grocery store, and I’ve got a contract for eggs with a egg producer, and they are wiped out by bird flu, they have no eggs for me, yet I still got to have eggs on the shelf or in the restaurant. I got to go out in the spot market and buy eggs.
And that drives up the price. And that’s, you know, so within all of this are some pretty fundamental supply reasons for higher prices. And that is we produced a lot less eggs because avian influenza wiped out our chickens.
Now, today, we luckily have fewer cases of avian influenza. Profits have driven egg producers to expand their flocks, and we’re producing more eggs. And so we have very low prices now, particularly in the wholesale market, which we’ve got some prices low enough that they’re probably below some producers cost to produce the eggs.
So it’s a real volatile market, but we’ve got this underlying disease problem.
Jeffrey H. Snyder, Broadcast Retirement Network
Let me ask you about, I want you to put your professor hat back on, your economic professor hat. Let’s talk about how possible or likely it is for, in any industry, but let’s focus on the egg industry, to collude, right? I mean, that’s what the accusation was, is that they colluded.
And I think the case can be made in any industry. I mean, you see this all the time. How likely in our economic system is it for producers to collude with one another?
Because it would seem to me that there’d always be someone that would want to cheat on the others that are colluding, right? I mean, it doesn’t seem like the market would really take care of that, right? Wouldn’t that kind of push that out?
David Anderson, PhD., Texas A&M University
Well, I always called that my J.R. Ewing argument. For those of you who remember the old TV show, Dallas, they had a cartel, and J.R. Ewing made all those oilmen to get together, and they decide they’re going to cut production to drive up price. And as soon as he walked out of the meeting, he turned the spigot on to cheat, right?
And so that example also gets to a fundamental idea. If we’re really going to drive up prices, we got to cut supply. We have to be able to control supplies.
Now, illusion in that, in my little example, is those guys all sitting around and deciding themselves around a conference table that they’re going to do this. The OPEC idea, where they have a meeting and decide to cut production to drive up price. In this case, it’s perhaps a little more subtle in that the argument is that there is price signaling, or that they use a public kind of market price information news service to signal each other to drive up prices, or that they play some games in there to drive up the price, which signals other players in the industry what’s going on.
Sometimes, I think historically, we’ve had other industries where there was sort of a mover and a follower. So one actor in the market would place a rule. They would announce, we’re going to have these price increases, and then everyone else would decide whether to follow along.
And so, how this mechanism happens, if it happens, that’s kind of where I think some of this hinges. How do you collude? You got to be able to control supply to drive up the price.
That’s where, can you really do that for long?
Jeffrey H. Snyder, Broadcast Retirement Network
I don’t know. I’m not the professor of economics, but I would say in a free market, you can’t do that because other competitors will come in that are not part of the collusion to offset or lower prices. So they’d be forced to match that or lose out on opportunity, I would think.
Dr. Anderson, go ahead and finish your thought.
David Anderson, PhD., Texas A&M University
Well, if you don’t mind, you can take what you want out of this if it works. But I think that’s where we think about this idea of a free market. We often confuse that or think of that as a perfectly competitive market.
And there’s a lot of assumptions that go into that that sort of break down. One is that the idea is that a competitor will come in and produce more and drive the price down. But there’s also a lot of barriers to entry.
It can be very expensive to get into that industry. So there’s a bunch of assumptions in this competitive market, of which monopolies are an example of a market failure, takes us away from that free market, that competitive market.
Jeffrey H. Snyder, Broadcast Retirement Network
Yeah. Well, look, I’ll accept that distinction because I am not the professor. You are, Dr. Anderson. Always great to see you. Thank you for the economics lesson. Thank you for your insight.
And we look forward to having you back on the program again soon, sir.
David Anderson, PhD., Texas A&M University
Thanks.