Photo courtesy of iStockphoto
Last Thanksgiving I attempted my second annual forecast for the price of Thanksgiving dinner, as measured by the American Farm Bureau Federation’s (AFBF) informal price survey. In the article, Thanksgiving Dinner and Inflation Forecasts, I predicted that the price of Thanksgiving dinner for 10 people would increase by 5.4%, from $49.20 to $51.86. This was an expectation that food prices would grow faster than general inflation, a forecast more than warranted at the time considering that the price of Thanksgiving dinner had risen 13.2% from 2010 to 2011. In 2010, I only projected an increase of 1.98% in the article Inflation and the Cost of Thanksgiving Dinner. As it turns out, the inflation on Thanksgiving dinner rose only 0.57% from 2011 to 2012, a favorable miss for a stable price of $49.48.
The AFBF data is collected by 155 volunteer shoppers in 35 states and used to calculate the average price for a 16 pound turkey, along with “bread stuffing, sweet potatoes, rolls with butter, peas, cranberries, a relish tray of carrots and celery, pumpkin pie with whipped cream, and beverages of coffee and milk, all in quantities sufficient to serve a family of 10. There is also plenty for leftovers.” (Grondine, Sirekis) This selective and unofficial inflation statistic indicates a basket of items that has increased less than food and beverage prices more generally, which are up about 1.52% from last November. Currently the annual inflation for all items is running 2%, and this is the same rate even when food and energy costs are excluded (“Consumer Price Index”). This year’s Thanksgiving grub is below my inflation expectations and the actual inflation for most things, which is normal to low already.
Now that I have two predictions to evaluate against actual prices, we can rate the forecast performance over time. Quantitative forecasts are judged by accuracy, which is the relative closeness of a forecast to the realization. This is opposed to judging based purely on correctness, whether you are right on the money or not. A simple and fair way to measure accuracy for one forecast is absolute percentage error (APE), and for the cumulative performance of multiple forecasts it is common to use the mean absolute percentage error (MAPE). For the forecast I made for the 2011 price I had an APE of 9.9%, and for 2012 I had an APE of 4.8%, making my MAPE about 7.4%. Not the best forecast performance overall, but a good year over year improvement.
Maybe I can improve upon my accuracy with my third annual forecast for 2013. After a little analysis and some simple model construction, I am prepared to project that the price for Thanksgiving dinner for 10 people in 2013, as measured by the American Farm Bureau Federation’s informal survey, should be expected to hit $51.26. This is an expected increase of 3.6%. Of course there is uncertainty in forecasting and to some extent this can be formally stated with prediction intervals to supplement the point forecast. I am 68% confident that the price will fall between $50.45 and $53.44. I am 95% confidence that the price will fall between $49.64 and $55.63. The actual price of Thanksgiving dinner in 2011 and 2012 fell within the 68% prediction interval of my forecasts in both instances.
Once again the biggest factor in the price increase and the largest share of the total dinner price is the turkey. Last year turkey prices rose an astonishing 22.1%, but this year the increase was a much more modest 3.1%. Still, above general inflation levels for all food and all items in the aggregate indexes. I dove into the big spike in the cost for turkey last year. The primary factor driving food prices higher is the jump in global demand against slower increases in supply. A rising middle class in populous China and India is demanding more meat in their diets and the world supply is not keeping pace. The rise in global food prices is expected to continue into the future due to these fundamental forces, but it is good to see that the price of turkey meat is not progressing at the same pace that it did last year.
Since 2002, the cost for a turkey has grown by 56% (Moran), all food prices have risen by 32%, while inflation for all items is up 28% and inflation on everything except food and energy is up 20% (“Consumer Price Index”). The longer term upper trend of inflation on all items is reflective of growth in the money supply, but I don’t think this is a bad thing necessarily. Along with many economists, I consider a low and steady rate of 2% to be a optimal. Steady inflation is desired over volatile inflation, as the former is more conducive to planning for the future, reduces economic uncertainty, and encourages growth. Inflation much higher than 2% will more quickly devalue the dollar in your pocket and typically leads to volatility and market disorder. Inflation lower than 2% is indicative of a deflationary environment, and these are historically problematic and associated with market volatility and frequent labor disruptions. Labor market correction and stability is best served by low and steady rates of inflation, not high and variable inflation, nor deflation. Unfortunately, food prices are rising faster than general prices while also being highly variable from year to year. This inflation is problematic for consumers, but deflations have been devastating to farmers.
2012 Drought vs. The Dust Bowl
This year the U.S. has experienced its worst drought since 1950, with July 2012 the hottest month ever recorded in many areas across the country, and 80% of agricultural lands affected. Corn crops have failed en masse across the Midwest, leading to much lower yields and a culling of livestock for a shortage of feed. Extreme weather can be a significant factor in the prices for food, as it can have a direct effect of reducing supply. Lower supply in the context of constant or increasing demand will put upward pressure on prices for agricultural products in America and elsewhere. It is expected that food prices will rise by about 3-4% over the next year, higher than the normal 2-3% (Crutchfield). As I was reading about the drought over the summer I anticipated that this would lead to higher prices for Thanksgiving dinner, so I was pleasantly surprised to discover that the actual cost increase was less than 1% for 2012.
Photo courtesy of iStockphoto
The effects of the drought will take a little longer to filter through to the higher end food items, so next year may be a less optimistic story. The 2012 drought had an immediate effect on the cost of corn through the direct reduction of supply, and through the effects of substitution the price of alternative produce increased next, such as soybeans and other grains. The use of corn as feed for livestock means that margins are squeezed for ranchers, with pressure to raise the prices for beef, pork, poultry, and dairy. These latter costs may actually fall in the near term due to the culling of herds, resulting in a temporary glut in the meat aisle, but after this the resulting shortages will lead to inflation on these items (Crutchfield). All things considered though, the effect on prices is not expected to be too extreme.
We have reason to be thankful this Thanksgiving, even in the face of drought. Most American farms are covered by Federal crop insurance and much agricultural land is maintained by large operations, so the effect on the livelihood of farmers is not as devastating as it was for past droughts. The Dust Bowl of the 1930s was a calamity like no other in our history, a traumatic environmental catastrophe that added substantively to the economic tribulations of the Great Depression. It was the worst man-made natural disaster in U.S. history (“Surviving the Dust Bowl”). My wife’s grandmother Stelma Solter lived through the Dust Bowl in South Dakota as a young girl and she remembers it as a very frightening time. Frank Armin, Stelma’s father, wrote of his experience of the drought in 1933-34. Reading Frank Armin’s “Mind’s Ramblings” brings the Dust Bowl to life, illustrating a vivid picture of the plight of Midwestern farmers, better than any statistics I could dig up.
A WORD PHOTOGRAPH OF MY MIND’S RAMBLINGS
It is November 1933.
Nearly the end of the third successive year of absolute drought
and complete crop failure.
Many of my friends and neighbors have given up and gone.
Gone to many diferent localities, seemingly just so it is away
I’ve a good mind to leave too, don’t know what I’d do if I left,
but later I might not be able to leave if I wanted to.
But–I’ve lived here for many years.
I came with the idea of making it my permanent home.
I still have some things, presumably of value, here.
We’ve had three years of drought.
They say things happen in series of threes.
It is sure due to change now and a rainy wet series of years
is bound to begin.
I think I’ll stick and try it again.
I will hang on to the little I have left, and build back with the
improved conditions that are sure to come.
It is the 12th of November.
Things look peculiar outside.
A soft, yellow, haze-like glow is all around.
It is blowing quite hard.
It keeps blowing harder.
The yellow is turning to gray.
It blows harder yet.
The gray is turning to black.
Its dirt. The air is full of dirt.
It blows through the key hole.
It blows in around every door and window.
I look in the glass and my face is covered with dirt.
I run my hand thru’ my hair and a cloud of dust rises.
It is even hard to breath inside.
The lights go out.
It is noon and I can’t see my hand before my face.
It lasts for several hours, and then begins to ease up.
The wind still howls but the dust and dirt lessens.
Maybe its blown it all away.
The wind dies down and the lights come on.
I look about. Everything inside is completely covered.
Dirt inside the cupboards. Dirt inside the dresser.
Dirt all over the beds. In my ears. Down my neck.
I start in and push out shovels full of dirt.
By midnight I have cleaned enuff that I can go to bed.
Morning of the 13th.
Everywhere people are working cleaning up.
All talk is about the dust storm.
It’s a phenomenon. A black blizzard. A new sensation.
We forget the work of it, the misery of it.
We think of it only as a new sensation.
Snow will come soon and prevent further storms like it.
December is here.
Bleak, dry, dirty black weather.
Each week the wind blows and we have almost another dust storm.
We all clean house after each storm–it seems foolish to waste
time doing it but we have to live in the house.
Several inches of snow falls.
The bare bleak ground is covered with a pure white blanket.
It is the beginning of the moisture we knew would come.
We are all happy again.
Improved conditions are on the way.
The wind don’t blow so much.
The snow lies quietly on the ground.
We have several weeks of optimistic happiness.
The weather warms and the snow melts into the ground.
About a half inch of moisture.
It will soon snow again.
We won’t kick if it holds off for it will do more good in the
And now it is March.
No further moisture yet but its due anytime now.
The winds come up.
A little dust in the air again.
Is it possible that our moisture is gone already.
Surely not–but another wind and the air fills with dirt.
Time to sow our grain–but no use unless it rains.
Another bad wind and the houses all filled with dirt.
The women are getting hard to live with.
The men are getting hard to talk to.
Every one is just waiting and hoping, for
We have a fast growing season anyway.
If it will just rain by the tenth of April we can still have
a good crop.
And now its April.
Another dirt storm.
The trees left are not budding out.
No green grass is yet to be seen.
Even the dandylions havn’t started.
But it is bound to rain soon.
Entire mid-west dry, says the papers.
A yellowish dirty day but smells like rain, or has my imagination
got away from me.
The moon changes at the end of this week and so will the weather.
Real warm and balmy, but that yellow look is still in the air.
Tomorrow sees the moon change. IT WILL SEE A WEATHER CHANGE.
Tomorrow is here. The wind is rising, the air is hot, that
peculiar yellow look is everywhere.
The yellow is turning to gray. The gray turns to black
Dirt fills the air again.
It is coming through the key hole. It is coming in through the
windows and doors.
I have to turn on the lights.
I can’t see across the street.
It is worse then night for I can’t breath.
It is a repetition of last November 12th.
But it now is no phenomenon. Not a black blizzard. No new
sensation. Its just dirt, nasty dirt and hard to take.
Dirt everywhere,. The cupboard is full. My dresser is full.
Dirt all over the bed. Its in my ears. Its down my neck.
I have to clean up some before I can go to bed. I’ll finish
in the morning even if it is Sunday.
Sunday morning. Bright, sunny, quiet.
I clean up thoroughly. I hang out the clothes.
I have to take them back in for the wind is rising.
By evening the air is again full of dirt.
It is covering the house again.
I crawl into bed before it gets too bad and pull the sheet over
my head to keep the dirt off my face.
I half waken in the night and the wind is still howling.
Monday morning, wind still blowing hard.
Can only see a few blocks and the house is as bad as ever.
The sun can’t shine through the dirt and that miserable,
yellow-gray look is all outside.
Its the 23rd of April and no rain.
Its the 23rd of April and no seeding done.
Its the 23rd of April and the trees not even budded.
Its the 23rd of April and no green grass.
Things don’t go in threes, they just keep getting worse.
Shall I try and stick it out longer?
Am I a fool–after the experience of the past three years
and a similer beginning of the fourth year–to even
hope for anything here?
What is the best I can expect by staying?
Can it be as bad in other localities?
Can I support my family if I leave?
Can I support them if I stay.
How can I decide what is best to do.
Apparantly it is disastrous to stay, they say it is disasterous
I’ll stay a little longer.
Maybe it will rain.
Iroquois, South Dakota
(about the drought in the Dakotas)
What do you think of Frank Armin’s word photograph? Reading about these tribulations of the Dust Bowl makes me feel especially thankful this year. Things have been rough for Americans recently, but this is small in comparison to the trials of 1930s.
Jared Roy Endicott
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“Consumer Price Index”. Bureau of Labor Statistics. Contacts: Cyndie Sirekis, and Don Lipton. 16 Oct. 2012. Web. 8 Nov. 2012.
“Classic Thanksgiving Dinner Costing More in 2011”. American Farm Bureau Federation . Contacts: Tracy Taylor Grondine and Cyndie Sirekis. 10 Nov. 2011. Web. 18 Nov. 2011.
“Cost of Classic Thanksgiving Dinner Up Slightly in 2010”. American Farm Bureau Federation . Contacts: Cyndie Sirekis, and Don Lipton. 12 Nov. 2010. Web. 21 Nov. 2010.
“Cost of Classic Thanksgiving Dinner Up Slightly This Year”. American Farm Bureau Federation. Contacts: Tracy Taylor Grondine and Cyndie Sirekis. 8 Nov. 2012. Web. 9 Nov. 2012.
“Dust Bowl”. Wikipedia. Web. 9 Nov. 2012.
“Economics of the Dust Bowl”. National Drought Mitigation Center. 2012. Web. 15 Nov. 2012.
“Surviving the Dust Bowl”. PBS. American Experience. 2007. Web. 9 Nov. 2012.
“Surviving the Dust Bowl”. PBS. American Experience. 2007. Web. 9 Nov. 2012.
Crutchfield, Steve. “U.S. Drought 2012: Farm and Food Impacts”. USDA Economic Research Service. 9 Nov. 2012. Web. 9 Nov. 2012.
Huffstutter, P.J.. “Thanksgiving Dinner Prices To Remain Stable This Year”. Huffington Post. 5 Nov. 2012. Web. 9 Nov. 2012.
Moran, Chris. “6 Everyday Food Items That Have Soared In Price”. The Consumerist. 23 Oct. 2012. Web. 9 Nov. 2012.
Westhoff, Patrick. The Economics of Food: How Feeding and Fueling the Planet Affects Good Prices. Upper Saddle River, NJ: Pearson Education, Inc., 2010. Print.