Long Run Pork Retail Prices Remain Competitive vs. Other Proteins
July 19, 2021
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• In the last 10 years, beef retail prices have increased at a faster pace than the price of pork and poultry. June beef prices were 51% higher than the average beef retail price in 2011. Pork retail prices, on the other hand, were 19% higher than in June 2011, while poultry retail prices were up 22%.
• Hog slaughter last week was once again below 2.3 million head (2.280), the lowest non-holiday slaughter week this year.
• Pork supplies are limited in the near term due to the decline in slaughter as well as carcass weights at annual lows. The decline in production has helped prop up product prices, especially the price of processing items, such as hams, bellies and trim.
• Lower slaughter and weights have especially impacted prices for pork trim. Tight labor supplies continue to limit the number of trim lines that packers are able to run, further reducing supply.
• Pork belly prices should be firm in the very near term but beware the seasonal tendency for sharply lower prices in late August and September. China exports are sharply lower and could pressure prices lower in the fall.
June U.S. Official Retail Prices Show that Pork Prices Remain Competitive Despite the Recent Price Surge
Consumer price inflation (CPI) accelerated in June, with headline inflation up 0.9% from the
previous month and 5.3% higher than a year ago and the biggest y/y increase in consumer prices since 2008.
Broader inflation for June was higher than analysts expected, with the consensus forecast at +0.5% m/m. Reopening of the economy clearly has helped bolster inflation figures as prices for lodging, rental cars and airfares have increased substantially. Higher prices for vehicles, both new and used, also added to June price inflation.
Food prices were also higher in June compared to a year ago, but the pace of growth differed. COVID shifted consumer demand to the grocery store last year, resulting in significant price inflation for food consumed at home.
As a result, current inflation is relatively muted when compared to last year’s high levels. June inflation for food consumed at home was up 0.9% compared to a year ago but 6.5% higher than in June 2019.
Reopening of the economy and lifting of restrictions has resulted in higher prices for food consumed away from home. This component of the index in June was up 4.2% compared to the depressed levels a year ago and 7.5% higher than two years ago.
While the broader inflationary trends impact both these sectors, retail food prices are clearly much more volatile and responsive to shifts in wholesale price inflation. We expect inflation at the restaurant level to continue to outpace inflation at the grocery store because structural issues, especially labor cost pressures, are much more acute in that sector.
As the economy recovers from COVID and the labor force slowly returns to pre-pandemic work patterns, we also expect increased inflationary pressures at the restaurant level. The reduction in the number of restaurants available, down as much as 9% by some count, will also tend to bolster cost inflation at foodservice.
Price Inflation for Specific Meat Products was Significant in June
It is important to recognize that we are comparing to some fairly lofty price levels a year ago.
Take the CPI for beef, for instance. The index in June (note this is an index value not a price) was 374.9, 5.3% higher than the previous month but 2.8% lower than a year ago. Retail pork prices in June jumped 4% from the previous month, a similar increase as in June 2020. Compared to a year ago pork retail prices were 3.2% higher. The poultry retail price index in June was 255.9, up 0.9% from the previous month and 1.2% compared to a year ago.
In the last 10 years, beef retail prices have increased at a faster pace than the price of pork and poultry. June beef prices were 51% higher than the average beef retail price in 2011. Pork retail prices, on the other hand, were 19% higher than in June 2011, while poultry retail prices were up 22%.
We have seen significant increases in wholesale beef and pork prices in the last few months but, as the chart below shows, the y/y change of prices at retail is far less volatile than at wholesale (PPI).
Now that wholesale price inflation has started to subside, we would expect retail price inflation to slow down as well. But as noted above, grocery store inflation will respond more quickly to wholesale price changes.
Even as overall price inflation pace will slow down, we still expect it to remain above long run trends. The 10-year inflation chart shows two periods when retail prices increased above trend, in 2014-15 and currently.
Higher returns and lower feed costs encouraged producers to expand in 2016-19, helping contain meat price inflation. We are now in the midst of a second inflationary cycle and it will take time for the market to adjust.
Factors that Could Drive Retail Meat Price Inflation in H2 of 2021 and in 2022
The following factors represent significant upside price risks but they are not a given.
- Broader inflationary trends
- Cattle and hog breeding herd declines
- Higher feed and energy prices
- Rising global demand
- Environmental restrictions and inability to expand production in line with demand
Some, like environmental constraints, represent long term structural issues. However, inflation expectations may or may not become entrenched depending on government policy. It is possible that corn yields this year may not decline as much as expected.
The prudent course, however, is to budget for a more inflationary environment at least for the next 12 to 18 months.
Weekly Pork Price Summary
USDA prices for pork sub-primals, including butt, loin, ham, picnic, belly, trim, and spareribs.