Meat Supplies Remain Tight, Driving Prices Sharply Higher
US meat supplies have tightened significantly over the past three years. Ordinarily such a reduction would be followed by higher prices, without much delay. However with the US economy in recession and unemployment high during 2008 and 2009, the impact of reduced supplies upon prices has been minimal – until 2010.
In 2007, per capita meat supplies reached a record 222 pounds per person, however supplies have receded sharply since – declining to 216 pounds during 2008, 211 pounds during 2009, and bottoming out at 209 pounds during 2010. This decline reflects both poor producer margins, as well as weakening demand during this period.
With poor margins, livestock producers have been reducing output to match demand. The USDA indicates that total meat production declined by 3.2% during 2009, including a sharp decline in broiler output (-3.8%) and smaller declines in beef (-2.2%) and pork (-1.5%). During 2010, the USDA is forecasting total meat production will decline fractionally (-0.2%), with a rebound in broiler production (+2.7%) offset by additional declines in beef (-1.2%) and pork (-3.3%). On a year-to-date basis, beef and pork production has declined by 1.0% and 3.8%, respectively; broiler production during the first half of 2010 is marginally above year ago levels (+0.5%).
Thus, while the economy is beginning to show signs of recovery, an overall expansion in supplies has yet to begin. This is not uncommon, as the biological lags involved in livestock production, and thus protein availability, make it difficult to match supply with demand. This is an important facet of the volatility of meat prices, one that has become clear over the past six months, as prices for most meat items has surged.
The pork cutout, representing the composite value of all pork cuts, has declined over the past month but remains more than 50% above year ago levels. Similarly, beef prices surged 20% between January and May and remain 12% ahead a year ago even after easing over the past sixty days. Chicken breast prices are currently 13% ahead of a year ago in spite of some modest expansion in broiler supplies.
Many protein items are highly seasonal, and peak in value between Memorial Day and Labor Day. Thus some relief in prices is likely during September and beyond. However, the overall tightness in supplies of livestock and protein suggests that for many cuts, prices are likely to remain well above year ago levels during the remainder of 2010 and into 2011.
Advanced Economic Solutions, LLC