Market Preview: Retail Meat Prices Edge Upward

US - In this week's "Market Preview" published in National Hog Farmer magazine, Steve Meyer discusses retail meat prices and tightened feed supplies.
calendar icon 20 September 2011
clock icon 5 minute read

Retail meat prices are headed upward again as cutbacks in the chicken sector begin to take hold. Figure 1 shows the average monthly retail prices for major meat and poultry species dating back to 2000. The data come from USDA’s Economic Research Service and are based on Bureau of Labor Statistics data used in estimating the monthly Consumer Price Index.

The price of all fresh beef (which included Select grade and no-roll retail product) tied its previous record of $4.872/lb., which was set back in May. The price of Choice beef set a new record of $4.489/lb., and the average pork price set a new record of $3.512/lb. Growing exports and lower summer pork supplies were a main impetus for these higher domestic prices as per capita availability fell.

The other driver of higher prices across the board was some long-awaited traction for lower chicken supplies in pushing the composite broiler price higher. August’s average of $1.787/lb. is over 5 per cent higher than the price in May – the highest monthly average price since last November. I expect this price to keep rising as the production cuts of this summer continue to reduce chicken supplies. Last week’s total slaughter was 5 per cent lower than one year ago and egg sets, which will determine slaughter in 8-10 weeks, were down 8.6 per cent from last year’s level. The "fly in the ointment" for lower chicken supplies remains average slaughter weights, which were 5.73 lb. last week, 3.6 per cent higher than one year ago. The business is pretty locked in to these big birds and apparently unwilling to change the product mix, but I think it has to happen if they want to get breast meat prices back to profitable levels.

The average turkey price in August was the second highest ever at $1.641/lb. The only higher monthly price was last October. I expect turkey prices to continue upward in their normal seasonal pattern, almost certainly destined to set new records this fall.

Implications of Tight Feed Supplies

Just how much feed is available? That question has been flying over the airways and even ringing around the halls of Congress in the past week as all of agriculture digests last week’s supply and demand estimates from USDA. Several livestock and poultry groups testified before the House Subcommittee on Livestock, Dairy and Poultry last week. They reinforced that feed supplies are very tight and could become very problematic if any weather problems develop in 2011, and if current policies remain in place. I was among the witnesses at the hearing.

Figure 2 contains what I consider to be the most critical data in this debate. It presents the amounts of corn, wheat, barley, sorghum, oats and net distillers dried grains with solubles (DDGS) used by U.S. livestock and poultry growers since the 2000/2001 crop year. A few features are very important.

First, DDGS is accounted for at 15 lb./bu. of corn going into ethanol. I hear from more and more sources that this DDGS yield figure is closer to actual yields than the more theoretical 17 lb./bu. we have used for several years. In addition, DDGS exports (which amounted to about 7 per cent of total DDGS output this past crop year) are deducted to arrive at the net DDGS availability to U.S. feeders.

Second, the feed/residual components of all other grains are accounted for as well. Logic would suggest that we might be using more of these other grains since corn availability has fallen, but the facts say otherwise. In fact, the amount of the four other grains used for feed/residual was barely half of the 2000-2001 level this past crop year and will recover to only 52.6 per cent of the 2000-2001 level in the coming crop year. The reason, of course, is that there are less of those crops available as corn, soybeans and cotton have captured more acres in recent years.

Third, and most important, the 166.804 million metric tons of feed ingredients available to the livestock and poultry sectors in the coming crop year will be 6.8 per cent lower than the peak level of 178.865 million metric tons available in 2004-2005 and will be 5.4 per cent lower than the 176.267 million metric tons available in 2007-2008, the year that prices first exploded upward.

The renewable fuels mandate will, in fact, take a smaller additional chunk of the corn crop in coming years than it took in years past. That’s good and it means the corn crop has a chance to grow as fast as ethanol’s take, keeping feed supplies more stable. But our main message to Congress last week was posed by this question, "What happens when we finally have another 1983 or 1988 drought and yields are 10-25 per cent lower than the trend?" The current policy forces more corn to ethanol even if supplies are drastically lower. We hope Congress got that message.

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