It’s almost Thanksgiving. That means its time for the annual news stories on trends in turkey prices. I put out a story a week or so ago that has been picked up in a number of print, radio, and TV spots. The headline is that this November’s turkey prices are expected to be at a 10 year low.
For a bit of background and context, this claim is based on average price data reported by the Bureau of Labor Statistics (BLS). These data are collected as a part of the BLS’s effort to construct the consumer price index (CPI) and monitor inflation. Here is a graph of inflation-adjusted retail prices for frozen turkey for the past eleven years in the months of October, November, and December.
The blue line represents November prices (we don’t yet know the 2018 November’s price, so it is foretasted based on past price movements). This year’s November price is expected to be around $1.45/lb, which is about 22% lower than the peak in 2013 and about 6% lower than back in 2008.
A couple comments based on the above graph. Interestingly, prices tend to fall from October to November. On average during the past 10 years, November prices are about 8% lower than October prices. At first blush, this might seem a bit strange. Doesn’t demand for turkey increase during thanksgiving, which should drive up turkey prices? Yes, but other factors are also at play. For one, retailers may strategically cut the price of turkey to get people in the door to buy the rest of their thanksgiving meal - i.e., turkey is potentially a “loss leader.” Second, producers expect the demand shift and produce more birds around the holiday. Here is a figure from the Livestock Marketing Information Center (LMIC) based on USDA data. As you can see, turkey production tends to peak each year in November.
I should note that the American Farm Bureau puts out an annual cost of Thanksgiving, and their estimates are for prices to be down this year as well. The USDA Economic Research Service estimates overall food price inflation and they’re also projecting historically low price increases. For 2018, they forecast prices for food at home to only rise only between 0 and 1% for the year; the 20 year average is about 2.1%. Why the low food prices?
One answer is that food production in general, and turkey production in particular, has become much more productive. We get more using less. Here is data again from the LIMC and USDA showing the number of turkeys slaughtered in federally inspected facilities since 1960 alongside the calculated number of pounds produced per turkey.
Prior to the 1970s, turkeys averaged about 15 lbs/bird, a figure that’s increased almost linearly since the 1980s up to the point now where we are over 30 lbs/bird. In fact, compared to the mid 1990’s we now have about 5 million fewer turkeys slaughtered every month even though we’re actually producing more total lbs of turkey today than in the early 1990s. Here’s total lbs of production over time.
The other big factor driving the recent affordability of turkey and other foodstuffs is that commodity (e.g., corn, soy, wheat) prices are low and have been low for the past couple years. Of course, this can’t be the only explanation because the price of retail foodstuffs is comprised of much more than just commodities, so it must mean that the prices of other inputs like labor, energy, and packaging have also remained relatively affordable.