There continues to be a lot of interest among consumers and the media about the causes of high beef and pork prices we've witnessed in recent months. It is a topic I touched on a couple months ago. I pointed to drought, previously high corn-prices, disease, and other supply side factors like technology disadoption. This piece in at the Atlantic blog says it can't be the drought and it is a result of consumer demand. This short post at TIME.com, says China and Japan are partly to blame. Chris Hurt at farmdocdaily says a lot of it is unexplained.
So, what's going on? Here is data from the Bureau of Labor Statistics, on retail meat prices (May is the last month they report).
Starting in mid 2010, prices ($/lb) for steak and ground beef started increasing, as did prices for bacon. They swung sharply higher in the most recent months. Pork chop prices were more steady, only noticeably increasing in April and May. Prices of boneless chicken show no apparent trend.
The above graph shows prices in nominal terms, but when looking at a 10-year time period it might also be useful to look at the data in real (inflation adjusted) terms, as I've done in the following graph. The general trends remain the same, except notice that in real terms, chicken breast prices have been falling, and sirloin steak prices are lower today than they were in 2004. Others, like ground beef and bacon, are higher today than they were a decade ago even after accounting for inflation.
These effects also trickle down to the markets for cattle and hogs. For example, here is data from the Livestock Marketing Information Center (LMIC), showing that prices for slaughter cattle are today far above where they were last year or in the previous six years.
The data seem pretty clear that a lot of the price pressure results from tight cattle supplies. Here's data from the LMIC on the cattle inventory (the total number of cattle in the US). We have fewer cattle in the US today than was the case in the 1950s.
The same broad trend isn't necessarily true for pork, but one can see from the graph below that there is a downward trend in pork inventory since 2008, and noticeably lower supplies this year in 2014.
Holding all else constant, lower supplies will mean higher prices (with less meat around, there is increased competition for existing supplies, and people bid up the price of meat). So, that pushes the question back on step. Why are there are lower supplies?
I'm going to stick with my answer from a couple months ago:
Yes, corn prices are today lower, but it is important to note the lags in production for cattle, and to a lesser extent pork, and to a much lesser extent poultry. Let's say you're a cattle rancher back in 2008 and you're facing much higher corn prices and drought that limits forage and hay to feed. What do you do? You start selling off part of your herd. As other ranchers make the same decision, prices initially fall but then start climbing. Then, in 2013 corn prices start falling and drought conditions subside in many parts of the country. So, you can feed cattle, but you don't have any excess sitting around. In fact, if you want to capitalize on higher beef prices, you might have to forgo current profits for future profits and hold back some of your female breeding stock (further tightening supplies). It might be another year till that new heifer is pregnant, another (almost) year till a calf is born, and another year and a half or so until you've got an animal that finally goes to the dinner table. Of course, what I'm describing is just the biological production lag that often leads to cattle and hog price cycles. This kind of cycle doesn't much occur with poultry because flock sizes can be changed relatively quickly, and that might explain why in the above graph, the price of chicken has been much more stable. (On the pork side, the porcine epidemic diarrhea virus, PEDv, is also partially responsible for the smaller inventories).
What about other explanations that are often presented for the price increases? I agree that consumer demand remains steady, something we've found in our Food Demand Survey (FooDS). But, it isn't increasing. You'd have to have increasing demand for consumers to be responsible for higher prices.
What about consumers in other countries? Exports? Here is data from the US Meat Export Federation on beef exports:
There was been a sharp rise in exports from 2004 to 2011, but recall that the retail price spikes we've seen started in around 2010, and over this time period, the volume of beef exports is relatively flat.
According to USDA, we only export about 10% of the value of beef produced, and much of this is North American trade between Canada, US, a Mexico. There was a 19% increase in the volume of beef exported from 2009 to 2010 and a 20% increase from 2010 to 2011, but then a 12% reduction from 2011 to 2012 and only a 3% increase from 2012 to 2013. China significantly increased US beef imports from 2012 to 2013, but other countries like Japan, Mexico, and Canada import more volume than China, and in fact the volume of beef imported increased more from 2012 to 2013 for Japan than for China. So far this year, Chinese imports are down compared to last year. [Addendum: it was brought to my attention that export data to China is shaky since the Chinese have not officially approved US beef imports; as a result, a lot of our exports to China flow through other countries, making these stats a bit difficult to interpret]. It should also be noted that we import as many lbs of beef as we export each year. All considered, I don't see foreign demand as the driving factor in the recent run-up in beef prices.
Ultimately, the old adage is likely to hold: the cure for high prices is high prices. The high meat prices we're seeing today will eventually encourage larger beef and pork supplies, which eventually will put downward pressure on prices. When will that day come? Sooner for pork than for cattle. If you've got a better answer than that, you can prove it by getting in the market.