Will consumers balk at record meat prices?

Will consumers balk at record meat prices?

Beef, pork and chicken prices are all at or near record retail levels, and although consumers say they anticipate higher prices to come, they may not be so willing to pay for expensive c

RETAIL meat prices held near record levels last month, according to the latest data from the Economic Research Service (ERS). Beef prices, in fact, set a new record, continuing the march toward $5.50/lb. for Choice beef.

According to economists Steve Meyer and Len Steiner, writing in the "Daily Livestock Report," the Choice grade average retail price for November was a record-high $5.409/lb. That broke the previous high-water mark set in October by 5.4 cents/lb. and was 5.9% higher than a year ago.

"Meanwhile, the all-fresh beef price (which included Select grade, no grade and store grade product) sold for an average of $5.014 per retail pound, up 3.7 cents/lb. from October and up 4.5% from one year earlier," they noted. "November marks the first time ever that the all-fresh price has been above $5.00/lb."

Pork prices fell slightly from October's record high, off 3.3 cents/lb. to an average of $3.776. Putting that into perspective, November retail pork prices were 8.6% higher than last November.

Chicken prices also moderated slightly, dropping 7.5 cents/lb. from October's record, and, at $1.956/lb., marked the first time since July that retail chicken prices fell below $2.00.

Meyer and Steiner noted that the modest 1.1% gain compared to last November follows two months of more than 8% year-over-year gains; in other words, chicken prices have had a pretty good run of late.

Turkey prices are up 15.7% year over year but retreated for a second straight month after setting a record high in September.

However, turkey producers aren't necessarily celebrating the second half of 2013.

"That kind of price increase would normally be cause for a big celebration, but it likely took another significant year-on-year cut in per capita turkey availability to get it done," Meyer and Steiner explained. "We say 'likely' because we do not have November production or export data yet. Per capita turkey availability declined, on average, 4.3% from year-ago levels from May through October."

The two economists looked at retail prices both in nominal terms — the terms in which these record prices have been discussed in this column so far — as well as in deflated terms, calculating current retail prices in 2000-02 dollars. While nominal meat prices are clearly at or near record highs (Figure), the story is a little different in terms of those deflated prices, although Meyer and Steiner noted that it has been a long time since real prices for beef and pork were anywhere near current levels.

"Real beef prices are back to the levels of the early 1980s, when beef demand was under assault over concerns about fat and cholesterol content," Meyer and Steiner explained. "Real pork prices are back to the levels of the early 1990s. It is reasonable to note that while the real prices of the two 'red' meats are just getting back to the levels of 20 and 30 years ago, real per capita disposable income has been 89% higher than in 1982 and 55% higher than in 1990."

The bottom line, in other words, is that consumers are enjoying much higher incomes but paying essentially the same price for beef and pork. This might help explain, to some extent, why consumer demand has held fairly firm even in the face of record nominal prices.

According to consumer survey data gathered by Oklahoma State University economist Jayson Lusk in his latest "Food Demand Survey," shoppers in December said their "willingness to pay" (WTP) declined slightly for all meat products — except for hamburger, long viewed as a bargain hunter's meat of choice.

Lusk and his colleagues survey roughly 1,000 consumers each month to gauge WTP for a basket of meats and other staple food products, as well as their feelings on a variety of food and agriculture-related issues.

The December survey found that WTP for "steak" fell 4.3% from November to an average of $6.42/lb. (Table). WTP for steak is down more than 30 cents over the past three months and remains fairly close to the ERS-reported average retail price for Choice sirloin steaks ($6.80/lb. in November).

Any economist will tell you that what consumers say they will do and what they actually do at the retail meat case may not be the same thing, but in this case, the fact that consumers said they were willing to pay slightly less in the fourth quarter may reflect seasonal budgetary stressors such as holiday shopping.

While Lusk's December WTP estimate is roughly 40 cents under the November retail sirloin price, WTP for chicken breast is still higher than current retail averages. Consumers said they were willing to spend $4.52/lb. for chicken this month, compared with a November average retail price of $3.45/lb. for boneless/skinless product; even so, WTP was down more than 10% compared with the prior month.

As with beef, November retail prices for pork chops exceeded Lusk's most recent WTP calculation: $3.95/lb. versus the $3.61 consumers said they were willing to spend in December.

While WTP for beef, pork and chicken fell across the board, Lusk noted that WTP for both chicken breast and steak was at the lowest level since the monthly survey started in May.

WTP for hamburger, meanwhile, came in at $4.20/lb., up 5.8% compared with the previous month.

Overall, consumers said they spent roughly 3% less on grocery and restaurant purchases last month and anticipate spending slightly more money on food purchases in the grocery segment and slightly less money on restaurant purchases over the next few weeks.

Shoppers said they plan to buy more chicken, and the survey data suggest that those purchases will come at the expense of beef and pork.

Generally, the survey reported an expectation for higher beef, pork and chicken prices to come, indicating that consumers understand the current underlying tone of the meat market and are under no false illusions that prices are likely to retreat anytime soon.

Will consumers balk at record meat prices?

 

Average retail prices and consumer WTP ($/lb.)

 

-October-

-November-

-December-

 

WTP

Avg. retail

WTP

Avg. retail

WTP

Avg. retail

Choice sirloin

6.74

6.82

6.71

6.80

6.42

Chicken breast

4.91

3.65

5.03

3.45

4.52

Boneless pork chop

3.80

4.00

3.75

3.95

3.61

Hamburger

3.92

3.39

3.97

3.48

4.20

Source for average retail prices: Economic Research Service. Source for WTP: Oklahoma State University, December "Food Demand Survey."

 

Volume:85 Issue:52

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