Summer/Fall 2013

Beef:

The number of U.S. cattle available for slaughter is down a whopping 1.5 million from a year ago, reflecting the smallest herd size recorded for the beginning of a year since 1952. Last year’s drought caused processors to move more cows to slaughter than normal, further shrinking the cow herd heading into 2013. The resulting declines in overall meat production will lead to higher prices in the near-term.

Consumers have had a history of shifting away from beef cuts when prices become too high. In addition, the new income tax that went into effect at the beginning of the year has left most households with less take-home pay than 2012. Many have already opted for hamburgers over steaks, while others will consider a switch to cheaper proteins like chicken and pork.

Suggestion:

Spring weather is finally making its way to the Midwest and Eastern regions of the country. Look for middle meat (defined as rib eyes, rib roasts, strip loin, tenderloin, sirloin, etc.) prices to shift higher near-term and maintain their estimated 10% increase heading into the summer months.

Pork:

Pork exported to foreign markets is down significantly to start the year, which means more supply of pork is available throughout the U.S. market. This increase in available supply has resulted in attractive pricing on pork cuts.

Prices are lower than this same time last year, making pork a competitively priced protein. Cool, wet weather has delayed the usual spring price increase, but pork prices are likely to go up once summer grilling season gets underway.

Suggestion:

Excess supply and a cool spring have created an outstanding opportunity to feature pork ribs, sausage, bacon and cutlets at super-attractive prices. Costs are expected to move seasonally higher through the summer month.

Chicken:

The chicken market is growing the fastest of all the proteins; wholesale prices are reaching levels last seen in 2007. Recent fast service restaurants roll-outs of new breast meat wraps and boneless wings have increased the number of chicken menu items above the number of beef menu items. White meat prices should get higher into the beginning of June and will potentially dip slightly for a short period prior to the Fourth of July. Thigh meat prices are following white meat prices higher as many consumers accept thigh meat as an alternative to white meat. Wings are the lone exception as to higher chicken prices, with a sharp downward adjustment from January record highs.

Suggestion:

Affordable pork and beef items may offer better opportunities on your menu this summer. Wings are the one item which have fallen to more normal price levels.

Winter/Spring 2013

Beef:

The latest USDA report suggests that beef production should be slightly lower in the first quarter of the year. With beef prices already at near-record levels, the question will be which cuts have strong enough demand to support price increases. Current price levels for chuck and round cuts are still below 2012 peaks, so there appears to be room for prices to go up before it impacts demand. Ground beef pricing may be approaching a peak in the next few months based on indicators that shows demand drops if the price goes much higher. Overall, consumer demand seems to have adjusted to higher beef prices, meaning higher prices may continue due to tight supply.

Pork:

In late 2012, the industry expected 2013 pork production to decline. However, a recent USDA survey reported pork production was unchanged from the prior year. Prices are currently stable and are expected to be higher into the spring. Bacon prices are trending significantly higher than last year at this time.

Feed prices (primarily corn) have moderated giving pork suppliers an incentive to keep their animals on feed longer. The latest USDA report shows that feed costs are likely to remain high, but the overall supply of pork remains steady at 2012 levels.

Suggestion:

Pork consumption is likely to see a decrease in 2013 again, building upon a trend seen over the past few years. Despite pricing, bacon continues to see wide appeal as it expands into more and more menu items.

Winter/Spring 2012

Beef:

Question: What do mortgage interest rates and per-capita beef consumption have in common?

Answer: They are both approaching the lowest levels seen since World War II.

Drought in the Southwest pushed 14% more cows to slaughter in 2011, further shrinking a record-small cow herd. The drought also increased the sale of feeder cattle under 600 pounds to feed lots. This means feeder cattle supplies will shrink for the next 2 or 3 years. The large number of cattle being sent to harvest early will result in 5% lower beef production in 2012. Increased world demand, primarily in Asia, should keep net beef exports about where they were in 2011. The combined effect of reduced production, strong exports and U.S. population growth will shrink 2012 per-capita beef supplies 10% below 2010 levels.

Suggestion:

As beef becomes more expensive the value of buying portion cut product is even greater. Factors such as yield loss, portion control, food safety and reduced labor costs make buying pre-portioned product a significant value.

Consider modifying portion sizes slightly smaller, look to value cuts and consider a reduction of grade in product where the impact would be slight, such as in tenderloins.

While individual beef consumption is down, beef is still considered a "splurge" item when eating out and often the choice of diners since they may not regularly purchase beef (steak) for home consumption.

Pork:

October 2011 exports were the second largest on record. Importing countries of Japan, China, Mexico, South Korea and Canada were able to take advantage of the depressed US dollar. As a result, pork prices domestically achieved a 30% increase compared to last year.

Prices have stabilized in the past 45 days, which is the result of greater availability of hogs and the increased value of the US dollar. This has also impacted foreign countries interest in importing more US pork.

As a result, export growth has stabilized and is expected to decline in 2012 as Asian pork production increases and consumer price inflation declines. Declining exports will increase US pork supplies to the US market but are expected to remain at current price levels because of declines in both poultry production (-1.8%) and beef production (-4.6%) year over year

The limited impact of inflation to pork pricing should make pork an attractive buy to US consumers. However, unique presentations, recipes and product usage will be needed to encourage diners to embrace pork on menus.

Additionally, BBQ will remain a highlight of pork usage following the trends of smoking and braising meats.

Chicken:

US chicken producers experienced large financial losses in 2011. Most of the industry responded with cutbacks, while some were forced to close their doors. The burden of too much chicken available in the market forced processors to sell product at historically low product values. High feed costs only added to chicken producer losses.

In mid summer, producers were forced to cut back production and egg sets by 8 percent. Over the past 6 weeks the broiler hatchery production is down 6 percent from last year. Due to high beef and pork prices, we are also seeing improved demand for chicken. In November, fast service operators bought heavy supplies of chicken to off set record high ground beef prices which, coupled with large export demand, pushed prices higher.

As 2011 closes the combination of reduced production and increased demand appear to have righted the ship for producers who are now poised to see profitability return. This will however, increase pricing particularly for the beginning of 2012.

Suggestion:

While chicken pricing is expected to increase in 2012, chicken should remain a value to Beef and Pork as pricing is expected to rise or remain at current levels. Value added solutions are expected to be less volatile, and like portion cut steaks, save labor, waste and increase food safety.

Fall/Winter 2012

Beef:

The worst drought in 50 years in the United States has pushed corn prices up by more than 50%, dramatically increasing the cost to feed all livestock, including beef. Does this cost increase automatically translate into higher beef prices? When pressed to answer such a direct question, the answer from economists is “it depends.” History suggests that beef prices do respond to a sharp increase in grain costs during the summer growing season.

There are multiple factors going on at the same time right now-

Feedlot operators are currently paying about $8/bushel for corn, which they use to feed their animals.

The current inventory of cattle is high due to growers bringing cattle to market early. They are selling/slaughtering early due to the lack of grass caused by the drought and the high cost of corn.

The higher number of cattle coming to market is currently keeping the seasonal cost of beef relatively low. This should continue possibly into November.

Suggestion:

You might consider taking advantage of seasonally lower beef prices prior to the holiday season with expected higher prices during the holidays. Developing a limited time offer is a great way to offer inventory flexibility in order to take advantage of this possible price volatility.

Pork:

The harvesting of pigs is accelerating as well (due to the same factors as beef), suggesting that the industry is starting the process of shrinking pork production. The acceleration of the harvest will probably not translate into higher prices until the mid-to-last half of 2013.

Suggestion:

Pork should be a value through the rest of 2012 and into early 2013. Consider featuring pork, especially considering that BBQ and slow roasting are still hot trends!

Chicken:

Chicken producers also feel the effects of higher feed corn and grain costs right away. Continue to market chicken since current production is keeping prices low. Look for rising prices on white meat products as we head into the holidays as the overall supply is reduced. Chicken remains a value when compared to beef and pork and should be offered aggressively to price conscious customers. Chicken wings are again anticipated to rise in cost and decrease in supply.

Summer 2012

Beef:

We’ve seen a strong surge in beef prices for the first quarter of 2012. Both ground beef and steak items have outpaced their 2011 prices heading into grilling season. However, warm winter weather and longer time on feed have increased cattle weights. Heavier cattle tend to produce more trimmings for ground beef. Furthermore, recent (possible) strength in the U.S. dollar has attracted more exporting of ground beef. The improvement in ground beef supplies should get us well into summer at prices very similar to last year, providing much-needed cost relief to operators.

Steak prices have gone up so far this calendar year. Ribeyes, strip steaks, sirloins and tenderloins are all averaging 15-20% higher than 2011. Despite speculation that higher gas prices might siphon consumer spending away from beef, the evidence so far shows that mild weather is “heating up” demand for grilling items like steaks. At this point it looks like the price for steak items may be near its peak, but there is little reason to believe they won’t continue to be priced higher than they were in 2011.

Suggestion:

Consumers continue to look for product that they will not make for themselves. Typically, steaks are a dining experience, however, much like last year, in spite of the higher prices, upscale burgers are expected to remain a growing menu item in restaurant sales.

Pork:

Pork prices have stabilized in the past 30 days, most likely due to decreased demand from the Pacific Rim and increased hog availability. The warmer than average temperatures of the 1st quarter have increased hog weights and increased total pork supply.

Strong retail demand has back rib prices going up, with prices trading 10% higher than this time last year. Spare rib and loin prices are at the same levels as this time last year. Prices are expected to increase seasonally in the weeks ahead, as grills are fired up and hog supplies typically go down.

Suggestion:

While pork is one of the most eaten proteins in the world, US consumption has fallen over the last few years. Restaurant trends show increased use of pork both in BBQ consumption (ribs, pork cushion and pork butt) but also in lesser menued items like pork belly.

Chicken:

2011 was great for operator and consumer prices, but brutal for processors. Processors lost millions of dollars and the poor market conditions caused several to declare bankruptcy. As a result, they have chosen to reduce production.

The changes have increased prices appreciably in 2012. Wing prices reached record highs in January, then dipped and headed higher again when orders were placed for college sports events like March Madness and the Frozen Four. Breast meat is priced at similar levels to 2011 at this time, but expectations are for higher prices as we fire up our grills. Thigh meat rallied higher a month ago and is holding steady today.

Historically high heat in the 1st quarter of the year translates to higher than average prices in spring and summer months. Excessive heat for poultry stunts the growth of chickens. If we experience extreme summer heat, higher prices should be expected.

Suggestion:

While poultry is priced higher than last year and looks to remain that way through the summer, it is still the best value of the proteins. Expect both restaurants and retail to feature chicken in numerous ways this summer.