CME: When Will Consumers Feel the Affect of Higher Feed Prices?

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US - How quickly will this year?s higher feed prices be felt by consumers in the form of higher meat and poultry prices? The answer is ?That depends on what you are buying?, write Steve Meyer and Len Steiner.

The reaction times of the different species are far different. The broiler industry can go from deciding to put another hen in the hatchery supply flock to having a dressed bird to sell in as little as 30 weeks. Turkeys mature slower, have a longer incubation period and are grown much longer than are broilers so they can go from setting an egg to expand the supply flock to finished bird in about a year. For hogs, it depends on where you start counting. From farrowing a gilt to add to the herd to getting pigs to market from her will be at least 18 months. That figure is 12 months if one starts counting from the time a gilt is selected at 6-7 months of age but that assumes sufficient numbers of gilts are available from breeders. Cattle take forever to change the supply ? at least comparatively speaking. Heifers are usually readily available so one does not have to back all the way up to the decision to breed cows to produce heifers. Even at that, though, it will take 9 months to get a calf and another 15-18 months for that calf to reach market weight.

Reducing supplies takes less time since hatching eggs can be destroyed and sows or cows can be culled early in their pregnancy. But you get the gist ? things do not start and stop on a dime when it comes to meat and poultry production so the impacts of cost shifts are not felt for awhile by consumers. That fact makes it difficult to get consumers engaged in any debate on the drought?s impacts. The corn price run-up of ?06-?07 is a perfect example. Compare the retail price increases for the four major species (price increase periods are circled) to the increase in corn prices. The lags vary depending on the species with retail pork prices not rising for about 3 years and retail beef prices not rising significantly for nearly 4 years! The turkey price increase period is longer for that of chicken primarily due to the strong seasonal pattern for turkey prices which carried them to then-record highs in the fall of 2009.

What is truly shocking is to compare the magnitude of this year?s corn price surge to that of ?06-?07 and to consider the cost increases of the past two years when crops were far more normal in size. We contend that this year is, at least for now, a short crop cost surge that, if normal weather returns in 2013, will be rectified. But even if it is not ?permanent? like to ?06-?07 shift, the impacts will eventually be felt by consumers, very likely for the next 3-5 years.

A clarification on one aspect of yesterday?s discussion of wholesale pork price reporting . . . One DLR reader rightfully pointed out via e-mail yesterday that we shouldn?t conclude that prices are reported on only 3-4% of the total pork products TRADED at the wholesale level.

More at http://www.thecattlesite.com/news/39710/cme-when-will-consumers-feel-the-affect-of-higher-feed-prices
 
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