Back in January, I posted about a paper I wrote with Glynn Tonsor about an approach to disentangle price and quantity changes to determine if they were occurring from a shift in the supply curve, a shift in the demand curve, or both. If there was ever a time to put these calculations to good use, this is it.
Because of the COVID-related shutdown and slowdown in meat processing, we know the supply curve for meat has shifted upward and to the left (i.e., the marginal cost of producing a pound of beef or pork has risen). Since the beginning of March, it’s less clear what has happened to demand. First, there was the closure of many restaurants (which would depress demand) but there was also the run on grocery stores and the stocking-up that occurred in mid to late March (which would boost demand). How is all this netting out?
Using the same data on wholesale meat prices and slaughter numbers that I’ve been posting about in the last couple weeks, I created supply and demand indicies for wholesale beef and pork using the formulas described in this paper.
The figure below shows the changes in wholesale beef supply and demand relative to the beginning of March. Beginning in mid-March beef demand began to rise and outpace supply as consumers stocked up amidst the shut-down panic. Apparently, in the short run, the stocking up behavior offset the loss of food away from home sales, and aggregate beef demand increased. This behavior, however tailed off and demand began to fall until about April 9th, after which it started to increase again. At about the same time, beef supply began to fall. The simultaneous combination of rising beef demand and falling beef supply is why we are seeing such dramatic wholesale beef price increases.
What about pork? Overall, the general pattern is similar to that of beef, except that after the mid- to late-March peaking stocking up phase, pork demand has continued to trend downward. Pork supply has also trended downward since about April 9th with the plant closures and shutdowns. The fact that pork demand, in aggregate, is now below where we were at at the beginning of March means there has been less upward pressure on wholesale pork prices. At least in the case of pork, the loss of food away from home sales has depressed demand by more than stocking up behavior has in grocery outlets has boosted demand.
