Fresh Pork Items Hit Record High Prices

Low Inventory, Sky-High Foodservice Demand, and Labor Issues Fuel Prices for Grill-Ready Items

One of the more ubiquitous items going into the Fourth of July Celebrations are ribs. We have seen demand ebb and flow in the past, but nothing in previous experience compares to this.

USDA-AMS recently quoted the price of baby back ribs over $5 a pound, 61% higher than a year ago and 94% higher than the same time in 2019. Understanding what has been driving prices to this point should help in formulating a plan for the upcoming holiday as well as future feature activity.  

Normal Q1 Inventory Build Did Not Happen 

Normally market participants anticipate the surge in demand that happens in the spring and summer by building inventories when demand is not as strong, and supplies are ample. Typically, the supply of ribs in the freezer will double from August to February. 

However, according to the monthly USDA-NASS ‘Cold Storage’ survey, this year the inventory build was far less than normal, and by the end of April, freezer stocks were 27% lower than the five-year average.

Rising COVID cases in the winter and the uncertain future is likely the main reason for the lower inventory build, and retailers are now paying the price for the industry decisions made last winter.  

Foodservice Rebound Exceeds Expectations

Last year, retailers had the market mostly to themselves. While prices increased due to the shift from foodservice to retail, the lack of competition from barbecue places and other foodservice operators helped keep the market in check.  

Now that foodservice demand is back, and they have little freezer stock, the race is on to outbid each other. Pork ribs are not the only items that are affected by this competition. We ran a price ratio of pork ribs vs. briskets, another popular barbecue restaurant item. Currently, the price multiple of baby back ribs vs. briskets is about one to one, right in the middle of the 10-year range. Baby back ribs have become less expensive relative to ribs than a year ago.     

Labor, Not Hog Numbers, is the Issue

Hog processing is only one of many industries that are currently struggling with a tight labor pool and high costs. So far in 2021, hog slaughter has been higher than we expected from the March inventory survey.  

According to USDA data analyzed by Steiner Consulting, weekly hog slaughter in April averaged 2.456 million head, up 3% compared to April 2019 (comparisons to last year are skewed by COVID disruptions). And weekly slaughter in May averaged 2.394 million head, 2% higher than in 2019.  

With limited labor supply, packers are asking more for items that require additional labor, such as boning loins. Given the competition mentioned above and the limited supply in the freezer, the packer can ask for more money and get it.  

Are High Prices Here to Stay?

We expect prices for ribs and other fresh pork items to pull back from current levels. Indeed, some of that has already occurred, with the rib primal on June 17 down $78/cwt or 26% compared to pre-Memorial Day prices.  Some of the bull whip effect that we have experienced after lifting COVID restrictions will subside.  

In 2014, the last time prices were at current levels, wholesale prices in November were down 32% from the summer peak. However, we do think that overall pork price inflation will be well above average levels in the short to medium term.  

One driver of inflation will be the increase in feed costs, by far the highest operating expense for producers. Corn prices are currently hovering around $6.50 per bushel, more than double the average of the last three years. Supply availability will improve in the fall, with slaughter back to 2.7 million head per week. Unfortunately, the broader inflationary trends in the economy will continue to affect the pork market.