Do retail meat prices decline?
Most of my work involves providing supply and demand information that affects livestock prices directly to livestock producers. The original goal for the Spotlight on Economics column was to reach a broad audience and have more of a consumer focus than the traditional agricultural producer clientele.
Agricultural producers are well aware of the volatility in prices for commodities they produce, as prices move up and down in response to changing supply and demand conditions. However, some consumers have the perception that food prices always increase and rarely decline. Granted, food prices are much less volatile at the retail level than at the farm level.
Prices can change daily at the farm level and tend to follow seasonal price patterns due to seasonal production and demand factors. For example, hog prices are usually highest in mid-summer, when pork production is lowest for the year. And feeder calf prices are usually lowest in October and November, when many spring-born calves are marketed.
Aggregate prices for meat and dairy products tend to follow changing supply and demand fundamentals but lag change in prices at the farm level. Prices for specific meat products often are impacted by traditional holidays and events. Examples include turkey at Thanksgiving, beef for Father’s Day, lamb for Easter and Passover, hot dogs at baseball games and chicken wings at the Super Bowl.
Bacon prices are usually highest in mid-summer when pork production is lowest and demand is high due to the ample supply of homegrown tomatoes and consumers’ desire for bacon, lettuce and tomato sandwiches.
Back to the comment that some consumers perceive that retail meat and dairy prices do not decline. Retail prices for most meat and dairy products have declined. Some are the lowest in several years.
Egg prices are one of the most vivid examples. Retail egg prices vary around the country but are about one-half the price of a year ago. Record high prices in 2015 were the result of avian influenza substantially reducing egg production. Egg prices at some locations are the lowest in 10 years.
For a historical perspective, in 2014, record farm-level prices for most red meat, poultry and dairy products, along with lower feed prices, stimulated production to record-high levels. A good way to monitor changing levels of meat production and corresponding livestock prices is the U.S. Department of Agriculture’s World Agricultural Supply and Demand Estimates (WASDE) report. Updated WASDE reports are released monthly around the 9th to the 12th and are available at https://www.usda.gov/oce/commodity/wasde/.
In 2014, total red meat and poultry production was the lowest in several years. It was expected that chicken and pork production would begin to ramp up with the lower feed prices. But the porcine epidemic diarrhea (PED) virus in hogs and genetic problems in chickens caused lower than expected production.
Beef production also declined due to the cyclically declining cow herd. Lower than expected meat production, along with a number of other positive fundamental factors, led to record-high annual prices for fed steers, hogs, broiler chickens, turkeys and milk.
Record-high prices in agriculture tend to cause increases in production to at times record-high levels. For example, record-high corn prices due to drought in 2012 caused at or near-record corn crops from 2013 to 2016.
Due to the reproductive biology of livestock, the broiler chicken industry can increase production the quickest, followed by pork. Obviously, the beef industry is slowest to be able to respond to record-high prices.
In 2015, the pork and broiler industries did respond relatively quickly with record-high production. Pork production increased about 7 percent and broiler production was up almost 4 percent from 2014. Even though beef production continued to decline (minus 2 percent), the increase in other meat production led to record-high total meat production, up almost 3 percent.
Annual average livestock prices responded in the expected opposite direction, with hog prices down 33 percent and broiler chickens down almost 14 percent. Even though beef production declined, fed-steer prices also declined 4 percent due, at least in part, to the increased production and lower prices of competing meats.
The latest WASDE report predicts 2016 beef production to increase almost 6 percent over 2015. Another almost 2 percent increase in pork production and broiler production is expected, both record highs. The result will be about a 3 percent increase in total meat production, a record for the second straight year. Milk production also is predicted to be at a record high. The WASDE also predicts further increases and record-high meat and milk production in 2017.
Record-high U.S. meat and dairy supplies means ample products are available to consumers at lower prices than last year, and in some cases, for several years. The aggregate of all retail meat prices have declined about 10 percent from the record highs in 2014 to 2015. However, some individual meat items have declined 50 percent.
In general, retail meat prices are expected to continue to decline. But keep in mind that specific items affected by seasonal supply and demand may increase.