CME: Lower Retail Prices for All Meat Categories

US - All-fresh beef was the only meat category that garnered higher retail prices in May according to average retail price data released by USDA yesterday. Lower prices were found in the Bureau of Labor Statistics data (upon which the USDA averages are based) for Choice beef, pork, broilers and turkey, write Steve Meyer and Len Steiner.
calendar icon 15 June 2012
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As can be seen in the chart below, the All-Fresh beef price, which includes Choice, Select, store-grade and “noroll” (ungraded) product, reached a record-high of $4.687/lb last month, up 1.8 cents per pound (0.4 per cent) from April and 24.4 cents per pound (5.5 per cent) from May of last year. The price of Choice beef declined for the third straight month, falling 2.1 cents per pound (0.4 per cent) to $4.965. That price is still 1.9 per cent higher than last year. The relative changes in the two categories of beef are likely an indicator of overall consumer income and spending challenges as the economy continues to struggle.

Pork prices felly by 5.1 cents per pound (1.5 per cent) to an average of $3.408 per pound. That price is 2.2 per cent lower than last year’s $3484 per pound. May is the first month in which retail pork prices were lower than one year earlier since March 2010. The 5- cent plus reduction in average retail price suggests that pork was more widely featured in May. The lack of pork featuring in April was a concern to many producers and packers but changes in retail pricing strategies usually lag — quite necessarily — changes in wholesale prices. Pork cutout values began declining around 1 March and bottomed out in mid-April. Those lower prices were a surprise to everyone, retailers included, so any retail featuring to take advantage of lower wholesale costs couldn’t get rolling until late April or May.

The full impact of any featuring that occurred is not likely picked up by the USDA price data since BLS surveyors have no way to determine the number of pounds sold at the given prices they observe in retail stores. Since demand functions still slope downward and retailers are still reasonably rational, we’re pretty sure that low feature prices generate larger quantities sold thus meaning the feature prices should be weighted heavier than normal prices to obtain a true average. But in the absence of tonnage data, they are weighted equally thus overstating the retail price in times of widespread featuring.

The composite retail broiler prices fell by 3.9 per cent in May to $1.869. That price is still 3.5 per cent higher than last year and is only 3.5 cents per pound below the record set in March.

Turkey prices took the biggest hit in May, falling by 18.3 cents per pound to $1.608. That price was 10.2 per cent lower than last year.

When combined with changes in per capita consumption and inflation data, these retail prices tell us the status of domestic consumer-level demand for each species. We say consumer-level because the indexes represent all demand, not just demand at retail outlets, by using total consumption and treating the retail price as a shadow value for the product sold through foodservice outlets. Indexes can only be computed through April since May export data are not yet available and thus May per capita consumption cannot be computed. Annual demand indexes appear in the chart below.

Note that the 2012 observation is for the past 12 months through April compared to the same period one year ago. Monthly changes versus one year earlier appear in the following charts. Both the chicken and turkey indexes were higher in March versus one year ago, gaining 4.7 per cent and 5..0 per cent, respectively, primarily due to robust price increases versus April 2011. The April indexes for pork and beef were lower than last year due to sharply lower domestic per capita consumption and less-than commensurate increased in retail prices. We expect retail prices for both species to again move higher as beef and pork supplies tighten seasonally in July and August.

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