Markets are sending some very mixed messages about the state of demand at various levels of the pork value chain. While there are a few good reasons for the differences, our current measurements may be suffering from some well-known data woes as well.
USDA’s retail price data for April indicate that the average price for a pound of retail pork was $2.919. That is 0.2% higher than last year’s $2.914/lb., but when inflation is factored in, the real retail pork price this April is 2% lower than last year.
Lower retail prices are not necessarily bad, except that this reduction happened at the same time that per capita pork disappearance was falling by 3.9% vs. one year ago. Lower price and lower disappearance can mean only one thing – lower demand. My calculations say demand was 5.3% lower this April than it was a year ago.
That number differs a bit from the -7% demand change computed by University of Missouri Agricultural Economist Ron Plain. The most likely reason is that we have made different assumptions about April exports and imports. The actual data will not be available until mid-June. I have simply plugged in March numbers for April, assuming exports were stable from month to month. I suspect Plain handled it differently. Data matters.
These changes at retail are in stark contrast to price and quantity changes at the farm and wholesale levels. April barrow and gilt slaughter was 3.9% lower than one year ago and the April national negotiated net price was 34.7% higher than last year. April commercial pork production was 4% lower than last year, but the average cutout value for April was 43% higher than last year. Both sets of numbers suggest much higher demand at both levels.
Why the discrepancy?
First, farm-level demand explicitly includes the demand for pork by-products. The value of organ meats, ears, cheek meat, tongues, etc. impacts what packers will pay for live hogs, but it has little, if any, impact on the values of muscle meats. And by-product values have been near record high levels (see Figure 1).
Second, exports impact the cutout value and, thus, farm-level prices. While the prices of exported cuts are not included directly in USDA’s cutout computations, those cuts’ movement to other markets reduces supplies in the United States and pushes domestic wholesale values and, consequently, farm-level prices higher. As can be seen by the meat margin line in Figure 1, farm-level prices have been quite closely tied to cutout values since last summer.
Third, all data are not created equal and this is especially true for price data.
There is little doubt in my mind that the best price data we have is the data for hog prices. Everyone must report prices. USDA audits those reports from time to time with the power to fine packers who show a pattern of incorrect reporting. The prices are published on a very timely basis.
Wholesale cut price (and thus the cutout value) reporting isn’t nearly so robust. Voluntary reporting means that only a small fraction of all wholesale cut sales are reported. USDA’s publishing a cutout value every day does not mean that prices of all component cuts are actually reported every day. In fact, prices up to a week old are sometimes used to compute the daily cutout simply because some items are either infrequently traded or infrequently reported.
And then there is the retail data. Most readers are familiar with the issues here – prices for very few actual cuts, few observations, data gathered early in the month, no volume weighting and, consequently, no accounting for the volume impacts of features and sale prices, etc. It now appears that USDA will not resuscitate the scanner-based retail price data project unless Congress tells the Agricultural Marketing Service to do it and appropriates the necessary funding. The former might happen, but the latter is pretty doubtful given federal budget woes.
But what does it matter as long as you are getting $80-plus/cwt., carcass, for your hogs? In the long run, domestic consumer demand is the most critical factor for your prosperity. While exports are great, we still sell nearly 80% of our muscle meat products here at home. While we can tolerate some short-term uncertainty about domestic demand, we must get a clear picture over time, and that picture must reflect at least stability and, quite preferably, growth if we are to thrive in the years to come.
Memorial Day Observance
Due to our altered publication schedule to accommodate Memorial Day on Monday, our usual North American Pork Industry Data and Production and Price Summary tables could not be updated this week. They will return in the June 7 newsletter.
We wish all of our U.S. readers an enjoyable and safe Memorial Day and we send belated Victoria Day/National Patriot’s Day greetings to our Canadian readers.
If you can possibly make it happen, please take the time to attend a Memorial Day observance. My family has been doing this for several years, and it always reminds me of how much we have to be thankful for and the ultimate price paid by so many. The melancholy strains of Taps always leave me inspired and grateful. I think you will feel the same.
Click to view graph.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.