Meat Prices To Continue Rising in 2011

Prices for animal products went up last quarter and are likely to continue increasing, according to reports by the American Farm Bureau Federation and the U.S. Department of Agriculture.

The AFBF's Marketbasket Survey, an informal quarterly survey done by 80 to 90 volunteer shoppers who collect prices on national brands, found that the prices of nationally branded meat and dairy products increased from last quarter. Of the meat products surveyed, bacon had the largest increase of 68 cents, up to $4.32 per pound — a 44% increase from 2009 — while sliced deli ham increased 18 cents to $4.84 per pound. Ground chuck, down 10 cents per pound, and boneless chicken breasts, down 34 cents per pound, were the only meats reported to decrease in price.

A small domestic meat supply and high production costs contributed to these price increases, according to AFBF economist John Anderson. He said more and more domestic animal products, especially beef and pork, are being exported to foreign markets, and “at the same time, we've had population growth, so the domestic supply has to cover more people, so on a per capita basis our domestic availability is really historically pretty small. It takes time to turn that around.” He added that increasing herd and cattle size can be a multi-year process.

As a result of these higher prices, shoppers purchased less of the pricier meats, but retail dollar sales continued to rise. This past year, bacon and breakfast sausage/ham dollar sales went up 4.2% for top brands in supermarkets, drug stores, and mass-merchandise outlets excluding Wal-Mart, despite a 5.2% decline in units sold, according to data from SymphonyIRI Group, a Chicago-based market research firm. SymphonyIRI also reports an average yearly increase of 38 cents for bacon prices and a 15 cent increase for breakfast sausage/ham prices.

This month's USDA World Agricultural Supply and Demand Estimates noted price increases across the board for animal products and projected possible further increases in 2011. The report raised the past report's estimate for red meat and poultry production in 2010, noting that this reflects “higher production of beef, broilers, pork and turkey.” USDA raised its cattle forecast for 2011 “to reflect continued strong demand for cattle and tightening supplies of fed cattle.”

“We're at a time here where because of high costs and the weak demand we had during the recession, there was a very strong incentive to cut back production, certainly no incentive to increase production. Now as the economy recovers … we expect to see some increase in demand and certainly in our foreign markets we're seeing fairly strong increase in demand. It's going to take time for producers to respond,” said Anderson.

Due to this increased demand, high production costs and slow herd increases, Anderson said, “Some modest increase in prices wouldn't be surprising, but at this point there's no reason to think that it's something that's going to be a really dramatic event.”