CME: Higher Retail Prices for Meat Expected

US - It’s now official — the US and Russia have reached an agreement to permit the resumption of US poultry export to Russia, write Steve Meyer and Len Steiner.
calendar icon 25 June 2010
clock icon 4 minute read

The agreement revolves around US efforts to inform US poultry producers about disinfectants and pathogen reduction treatments approved by Russia and to inform Russian government officials and buyers about the various solutions used by US processors and which poultry processing facilities are approved to ship product to Russian. Recall that Russian concerns about the use of super-chlorinated water to disinfect US poultry carcasses were the drivers of this whole episode.

Russia has been the largest export market for US chicken in all but one year (1999) since 1993 and imported 1.618 billion pounds of chicken in 2009. The largest share of shipments to Russia are leg quarters commonly called “Bush legs” to refer to the food aid sent by President George H.W. Bush in the late 1980s. The low-cost dark meat and skin is used in a variety of ways in processed meats. Shipments of lower-priced dark meat to Russia and other countries has allowed US chicken producers to sell the breast meat preferred US consumers at very competitive prices. This preference for white meat drove the US chicken industry to develop birds that produce a higher and higher proportion of breast meat. At least one keen and respected industry observer, Dr. Paul Aho of Storrs, Connecticut, believes this model is beginning to change as Russia’s domestic industry grows. That growth (protection of which was, to many, the real reason for all of the concern over chlorine) will put pressure on US dark meat values and pose challenges in moving breast meat at high enough prices to carry sufficient whole-bird values. If Russia can indeed increase its self-sufficiency for chicken, it could be a game changer for US chicken companies. Whether they can pull it off depends largely on the price of crude oil and there is still some doubt whether $70-75/ bbl. Is high enough to provide the needed cash.

Retail pork prices set a new record in May at $3.043/ lb. retail weight. That price was 12.4 cents/lb. (4,3 per cent) higher than in April and eclipsed the prior record of $3.026/lb. set back in September 2008. May’s pork price was 3 per cent higher than one year ago.

The composite broiler retail price also surged in May, gaining over 10 cents/lb. (6.2 per cent) to reach $1.755/lb., the highest level since last September but still over 10 cents/lb. below the record level of $1.857/lb. set in May 2009.

The average retail price for Choice beef rose 0.5 per cent to $4.463/lb. in May. The May price is 3 per cent higher than one year ago and is less than 8 cents/lb. lower than the current record monthly average of $4.526/lb. set in August 2008.

Prices for all-fresh beef and turkey fell 1 per cent in May but remain 2.1 per cent and 7.2 per cent, respectively, higher than one year ago.

We still believe that even higher retail prices are coming as higher feed costs, animal prices and wholesale values get passed on to consumers.

ERRATA: If the average pre-report estimate for the US swine breeding herd (96.5 per cent of 2009) is correct, the breeding herd in Friday’s quarterly Hogs and Pigs Report will be 5.759 million head — virtually equal to the 1 March herd. We incorrectly used the all hogs and pigs average estimate (96.9 per cent) in our calculations yesterday. Sorry for the confusion but this number, we think, fits better with the sow and gilt slaughter data than did the larger herd mentioned in yesterday’s DLR.

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