Excerpt from Marketing and Transportation Situation: May, 1974

Food price increases may slow considerably in coming months and prices may possibly show a modest decline late in the year if farm prices weaken further as expected. An easing of demand pressures, both foreign and domestic, and increased supplies of major farm-produced foods are expected to contribute to lower farm prices. Not all of these decreases will be passed on to consumers, however, because marketing firms are expected to increase their margins.

Operating costs of marketing firms will be rising, although uncertainty prevails as to the magnitude of cost increases for labor, energy, transportation, and other marketing inputs. But for the year the increase in the farm-retail spread may be more than double the 1973 increase of percent.

The retail cost of a market basket of foods produced on us. Farms averaged (annual rate) in the first quarter of this year, up about 5 percent from the previous quarter. It has increased each month since last October and in J annary-march averaged 22 percent above the first quarter of last year. Retail prices for practically all farm foods rose significantly.

Gross returns to farmers (farm value of quantities of farm commodities equivalent to retail units) for market basket foods averaged $777 in the first quarter, up almost 8 percent from the preceding quarter and up 24 percent from a year earlier. Returns increased for most items over year-earlier levels with prices for cereal grains, oilseeds, milk and eggs increasing the most. Monthly returns peaked in February and dropped sharply in March. A further sharp drop occurred in April.

Farmers received an average of 45 cents of the dollar consumers spent in retail food stores for farm produced foods in the first quarter of 1974. This share was 1 cent more than in both the previous quarter and the first quarter of last year. The share averaged 44 cents in March.

Farm-retail spreads continued to widen in the first quarter of 1974 as marketing firms reflected increased operating costs. The spread between the retail cost and the farm value of the farm-food market basket averaged $943 in the first quarter, about 3 percent more than in the previous quarter and almost 20 percent more than in the first quarter of 1973. The spread or gross margin for assembling, processing, transporting, and distributing the products in the market basket increased the most from year-earlier levels for meat products, poultry, eggs, bakery and cereal products, and fresh fruits and vegetables.

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