The Midwest just hasn’t been able to snap out of the cool, wet spring weather pattern that has plagued the area for all of April and now into May. While temperatures may finally warm up next week, rain also remains in the forecast. It’s making for grumpy farmers who are anxiously awaiting more than the occasional sunny day to help them get into the fields.
Consumers are grumpy too-- one part due to the weather and one part due to the rising costs they’re seeing at every turn.
The weather is delaying the grilling season, which the meat markets rely on to help push prices to their peak for the year. Hog prices in particular took a hit this week as both cash and futures turned lower. Early predictions had cash hogs topping at or beyond the $100-per-hundredweight mark (carcass basis), likely in June. Today, there’s more talk of the upper $90s. Hog slaughter will trend seasonally, lower into summer, so that will help.
However, beef cow slaughter is on the rise due to the severe and extended drought in the southwest. That will put more beef on the market in the near term, which will offer cash-strapped consumers an alternative in the meat case. Of course, that’s a temporary reprieve as it also will mean that those cows won’t be producing future beef supplies.
Chicken production remains high in spite of high feed prices and plenty of red ink. Yes, chicken remains consumers’ best bargain, but production cuts will have to come-- whether voluntarily or not.
Meat demand had been running strong this year, but the lingering question was “at what point would gasoline prices squeeze consumers’ purchases?” Well, it looks like we have our answer; at least until Americans get accustomed to paying $4+ per gallon for gasoline ($5 in some places) or the price declines. The record stands at $4.11 set in 2008.
So far this year, gas prices have surged upward by 30 percent. In April, the average American household paid $368 per month for gas—or 9 percent of their annual income, according to the Oil Price Information Service analysis for CNNMoney. That compares to $281 in 2010 and more than double the cost in 2009. Meanwhile, most Americans’ wages have not increased in that time.
Of course, food prices also are rising. Early predictions were for a 4 percent increase this year, now some are pointing to 8 percent. So, it’s no surprise that consumers are pulling back on spending.
This week has seen oil prices decline multiple days in a row. More of those analysts are now talking about $92-per-barrel oil versus $106—2008’s peak was in the $140s. Consumers are responding by driving less, but like food, there is a downside limit to those cuts. Sure Americans can car pool, some can take public transit and they can cancel road trips. But overall, the distance to work, school and other basic trips won’t change. Then there’s the rest of the world, which has increased its appetite for gasoline (especially China).
In 2008, U.S. gas prices held above $3 per gallon for 12 months, and it had a significant impact on consumer spending. Of course, the United States was dealing with a financial and housing crisis and entering what was a long and serious recession. Today, the economy is healthier, and the overall sticker shock of rising prices is less.
On the plus side for pork producers, the export market remains interested in U.S. product. The weak U.S. dollar helps, as does the fact that production costs in the rest of the world are still higher than here at home. This week there were hints of progress for the Colombia, South Korea and Panama free-trade agreements. Getting any or all of those finalized this summer would be a significant boost.
Food retailers are working hard not only to pull customers in to their stores, but to get them to buy. Meat specials are often their best bet. Wal-Mart has a price-match campaign. East-coast grocer, Wegmans, has fixed prices on 40 “popular family items”, including some meat cuts.
Another effort, announced just this week to assist the meat industry, the American Meat Science Association and American Meat Institute launched a campaign-- “Meat MythCrushers.” The objective is to reconnect Americans to modern food production and to “crush” some of today’s more popular myths associated with meat and poultry. Check out the website.
So, while there’s plenty of uncertainty in the markets and in the forecast, many of the long-term fundamentals haven’t changed. With so many market prices rocketing higher to record levels, it was time for a breather. And it would certainly be nice for everyone if the rain took a break and allows the sun to shine.