High meat prices to linger through summer
CHICAGO – The 2014 grilling season will come with a hefty price tag, but consumers should see some price breaks for red meat in the fall and early 2015, according to a new report from BMO Economics.
Aaron Goertzen, Economist, BMO Capital Markets, noted that farm prices for hogs jumped 24 percent to an average of $85 per cwt. between April and June. Cattle prices averaged $146 per cwt. during the same period, up nearly 18 percent higher than a year ago.
"After adjusting for inflation, hog prices are now at their highest since the mid-1990s, while real cattle prices are higher than they've been since the early 1980s," Goertzen said.
He added that tight supplies of cattle and hogs have driven prices for beef and pork to record highs.
"Much of the run-up in cattle prices has resulted from this herd rebuilding dynamic," Goertzen said. Meanwhile, hog herd expansion has been hurt by the emergence of the PED virus last year, which is now estimated to have killed around seven million piglets.
"All of this has resulted in substantially higher red meat prices at the supermarket," he added. "In the United States, the consumer prices of beef and pork were up 10.4 percent and 12.0 percent year-over-year in June, respectively, dwarfing overall food inflation of 2.4 percent. Consumers are not alone; food processors, grocery stores, and the restaurant services industry have all have seen margins come under pressure as wholesale meat prices have risen. Hog and cattle farmers, on the other hand, are enjoying a much-needed renewal in profitability after several extremely tough years."
Prices have risen more sharply in Canada, according to the BMO report. Pork prices advanced 16.6 percent year-over-year and beef prices climbed 12.8 percent year-over-year in June. Overall, food prices gained just 2.9 percent year-over-year. BMO analysts noted that the 5 percent year-over-year depreciation of the Canadian dollar in June is likely the main reason for larger price increases in Canada.
"Rising red meat prices will likely cost the average Canadian household more than $100 per year," Goertzen said.
But relief may be in sight: BMO forecasted a rebound in hog slaughter in late 2014. Beef prices will remain higher for a longer period because of the lengthy production cycle, according to Goertzen.
"The increase in supply should put steady downward pressure on prices over the second half of 2014, as will fading seasonal demand," he said. "Consumer pork prices should follow suit, though perhaps with a bit of a lag. In contrast, cattle and beef prices will remain higher for longer, mainly because of the industry's lengthy production cycle. Assuming that cattle producers began to step up breeding around the turn of the year, supply is unlikely to loosen materially until late 2015 at the earliest."