The marketing margins represent the differences between prices for equivalent units of meat at successive levels of the marketing chain. USDA converts prices of live hogs and wholesale pork to a retail product basis so they can be compared directly to the retail prices. The margins are also referred to as price spreads.

The differences between the various prices represent gross margins from which all non-livestock and non-meat costs must be paid. The farm-wholesale price spread, for instance, is just the difference between the wholesale and farm-level prices on a retail weight equivalent. No costs such as labor, transportation, plant and equipment, interest, packaging, etc. are deducted so the spread/margin does not represent profit. The same is true of the wholesale-retail spread which would be realized in part by processors and in part by retailers.

The charts below show the historic price spread data for beef and pork. The lower farm share of the pork dollar is attributable mainly to the higher level of processing that is done to many pork cuts. Retail pork looks less like a pig or wholesale pork cut that retail beef looks like a calf or wholesale beef cut. Processors must be paid to make those larger product transformations.

Recent record highs for both pork and beef prices have so far NOT been captured by retailers. Higher pork prices showed up as higher wholesale shares in the fall but have appeared as higher farm-level shares since November. Wholesale-retail and farm-wholesale shares for beef have stayed steady as retail beef prices have grown to record highs, meaning that the increase has, so far, been passed along to feedyards. They, it appears, are in turn passing them on to their suppliers as higher feeder cattle bids.

Also, a couple of errata for yesterday’s report: The 1 March 2010 feedlot inventory of our Cattle On Feed table was incorrect. The number should have been 10.849 million, making this year’s 1 March inventory of 11.394 million 5 per cent higher than one year ago, a figure equal to the average of analyst’ pre-report estimates. In addition, the percentage change figures for pork and chicken prices versus 10 years ago were incorrect. They should have read +25.5 per cent for pork and +14.6 per cent for chicken.

Our treatment of placement weights yesterday was, simply due to space limitations, a bit brief so we thought a bit more discussion is warranted. The chart below shows that our calculated average placement weight (which assumes the cattle in each of USDA’s four weight categories weigh 500, 650, 750 and 850 pounds) was 692.6 pounds. That is over 15 pounds below last year’s average weight and just under 15 pounds below the 2005-2009 average. It represents the lightest weight for February-placed cattle since 2001 and the third-lightest set of February placements in the current data set that runs back to 1996. The drop was driven by more light cattle (the 25 per cent increase we mentioned yesterday) as well as fewer heavier cattle. Placements of 700-800 pounders were down 5.8 per cent while the number of cattle weighting 800-pounds and over was 11.2 per cent lower than one year ago. February marked the fifth month among the past six in which placement weights have been lower than one year earlier.