WHEN it comes to prices for meat and livestock products, 2013 was a pretty good year, all things considered. Record retail meat prices have led to record cash cattle prices, record lean hog prices and record chicken prices.
As reported in this column last week, retail beef and pork prices set a record in October, based on data from the Bureau of Labor Statistics.
Choice beef prices hit a record $5.355/lb. in October, up 7% from a year ago. Pork prices averaged $3.809/lb., up 9.3% from last year and one of the strongest year-over-year gains on record.
Composite broiler prices, likewise, saw a huge increase over October 2012, up 8.6% at $2.031/lb.
Even turkey prices posted record highs, with an average retail price of $1.819/lb. in September, a 12.2% increase over the same month a year ago.
Strong retail demand this year has meant strong prices for slaughter animals, most recently with $132-134/cwt. paid for cash cattle — prices that first surfaced the week of Oct. 21 and have persisted in recent weeks as well. On a wholesale level, the Choice boxed beef cutout set a record of $211.37/cwt. back in May.
June 2013 was a good month for hog prices.
Based on Feedstuffs' historical pricing data, lean hogs set a record of $102.89/cwt. in the western Corn Belt the week of June 13, and the pork cutout set a record of $111.33/cwt. the week of June 26 (the same week that pork bellies set a record of $186.07/cwt.).
Around that same time frame, the Georgia dock price for whole broilers peaked at a new record, topping out at just more than $1.06/lb. Strong prices have helped encourage producers to feed birds a little more aggressively, leading to a record average slaughter weight of 6.04 lb. the week of Oct. 24.
So, there are two obvious questions to draw:
1. If the best cure for high prices is high prices, how long before these record prices disappear?
2. What are these prices doing to consumer demand?
Let's start with the first question. In the hog market, cash hog prices have already come pretty far down from those June highs, with the expansion cycle already underway, even if porcine epidemic diarrhea virus is keeping a lid on rapid growth in the industry.
More and heavier hogs have been coming to market in the past few months, so packers have not been pushed to bid aggressively to fill their kill needs.
Cattle prices continue to be underpinned by an extremely tight cattle inventory, and the futures market would indicate that some upside potential still exists in the cattle trade.
"The long-term bullish cattle situation of tight to very tight supplies remains intact," Dennis Smith of Archer Financial Services said. "The major challenge down the road will be moving beef priced at record highs in the face of challenging economic conditions and in the face of expanding poultry production."
Speaking of poultry, Georgia dock prices have also come down a few cents from their summer high, as expansion is clearly occurring in that sector.
Slaughter is running roughly 1.2% ahead of last year's pace, and ready-to-cook volume year to date is roughly 3% higher.
Smith said increased beef exports next year could help push cash cattle prices to new all-time highs, which brings up the second question about consumer demand. In the U.S., consumers have not balked yet at paying record retail beef prices; part of that is due to the improving U.S. economy.
In fact, the National Restaurant Assn.'s monthly Restaurant Performance Index indicated a significant improvement last month in terms of both same-store sales and customer traffic on a year-over-year basis. So, it appears that consumers have a little more disposable income that they're willing to spend on food.
Globally, this is an important trend worth watching. For the past several years, the agriculture industry has been reminded almost daily of the need to feed an expected global population of 9 billion people (or more) by 2050.
However, the amount of money consumers have, rather than the number of people there are, will be the biggest driver of food demand and prices moving forward, according to a new analysis from Purdue University economist Thomas Hertel, who said per capita income is set to eclipse population growth as the dominant driver of change in the global food system.
"For the first time in human history, income will have a greater influence than population growth on food security," Hertel said. "While the global population is estimated to jump from 7 billion people to 9 billion people in the next four decades, the rate of population growth is slowing. Meanwhile, individual incomes are increasing in many parts of the developing world, and with that growth will come more demand for richer, more nutritious diets."
Higher incomes, coupled with potential increases in the use of cropland for biofuel production, would require global crop production to double by 2050, he said. Furthermore, adverse climate conditions, higher energy prices and an increase in climate mitigation policies could combine to reduce cropland and increase food prices, he said.
Continued innovation in food production will be critical to balance that demand growth with those supply-side challenges.
"We've tripled crop production in the last 50 years," Hertel said. "If we can continue to make that kind of progress, we should be okay. What we do in the next decade will likely determine how successful we are in sustainably feeding the planet in 2050."
Despite hovering near record prices midweek, Smith said the market saw steady cash cattle prices as disappointing. Feeders were asking $133-134/cwt. for fed cattle, but packers were only paying $132 through last Thursday.
Futures markets saw a bit of a break last Thursday that led to some further technical selling. Some outside market news weighed on the market, but by and large, the fundamental situation has not changed.
"Record-heavy cattle weights, if they remain in place, will take some of the edge off the bullish supply-side story," Smith said. "Harsh winter weather may help to curb cattle weights somewhat."
Choice boxed beef prices have stayed above $200/cwt. since the week of Thanksgiving, but the market is concerned that boxed beef isn't moving nearly as well as it might heading into the holiday season.
Slaughter year to date is running nearly 1.8% slower than last year's pace.
Cash hog prices fell for a fifth consecutive day in terms of a western Corn Belt weighted average base price. Prices in the region have dropped every day since Thanksgiving and are roughly $9/cwt. off the recent high near $86/cwt. that was set the last week in October.
Some of this is typical seasonal pricing action, of course.
Farm Progress analyst John Otte noted that sufficient supplies of heavyweight hogs in most regions, combined with weaker wholesale pork prices, are adding to a somewhat bearish tone to the market.
Hog futures, in fact, slid to an eight-month low last Thursday, capping three consecutive sessions of lower closes. Ample supplies of heavy hogs are keeping the pressure on cutouts, which, in turn, is keeping a lid on prices.
"Although the total number of hogs to be slaughtered this week is around 1.7% below this time last year, the average market weight jumped to a record 281.7 lb. last week — 2.4% larger than hogs (weighted at) this time last year — making the forecast for total pork production higher than normal," Otte explained.
In a somewhat similar story, chicken prices are hovering roughly 2 cents off the record whole broiler price set earlier this year as slaughter is running roughly 1.2% larger than last year, and record slaughter weights have pushed ready-to-cook volume nearly 3% larger than last year.
Breast meat prices were down about a penny from last week at $1.775/lb.; leg quarters were down a penny as well at 49.5 cents/lb., and wings are well off the higher prices seen at the start of football season and are now holding at a more historically reasonable $1.21/lb.
Egg prices have been quite the story in recent weeks, rising more than 30 cents/doz. over the past month and up more than 50 cents since mid-October. While it is presumed that expansion is occurring, demand has remained strong, and weekly shell egg inventories continue to hover near 1 million cases.
Turkey prices have softened predictably in the post-Thanksgiving swoon and dropped roughly a nickel last week.
According to the Economic Research Service (ERS), U.S. turkey consumption follows a strong seasonal pattern that is characterized by peaks in per capita consumption around the Thanksgiving holiday.
Wholesale and retail prices tend to peak in the months preceding Thanksgiving, followed by drops in price during November and December (Figure), and that pattern is certainly holding this year.
Year-to-date turkey slaughter is down 2.65% compared with last year, but ready-to-cook volume is down only 2.34%, reflecting some additional weight on birds, which is consistent with the notion that cheaper feed encourages heavier slaughter weights.
A major concern for the industry is the realization that on an annual basis, U.S. per capita turkey consumption has slowly declined during the past five years, while domestic production has been flat.
ERS said even with lower prices this year and next, the gradual downward trend in per capita turkey consumption is expected to continue in the near term.