Pandemic results in record farm-to-retail price differentials in beef and pork


AFBF’s Market Intel series looked at the impact COVID-19 has had on the livestock, beef and pork markets during the pandemic. Food production has been significantly disrupted, especially at livestock processing facilities, where labor shortages and worker protection measures have slowed the throughput of factories across the country and even resulted in shutdowns. temporary of certain installations. As a result, there has been a sharp increase in the wholesale value of beef and pork which has coincided with a rapid decline in the value of live animals, creating a record of “diffusion of the living to slice”, which is the difference between the price that is paid for the live animal and the wholesale price of the processed animal product.

During this disruption, one area that has received less attention is the gap between the price of beef and pork leaving the processing sector and the price consumers pay at the grocery store. Part of the reason is the time lag between when prices are paid and when data becomes available for analysis. However, we now have several months of data to examine and piece together a picture of the impact of COVID-19 on meat price differentials.

The data

The USDA Economics Research Service compiles monthly average values ​​and the differences between these values ​​at the farm, wholesale and retail stages of the production and marketing chain for selected cuts of beef and beef. pork. Retail prices are taken from the Consumer Price Index from the Bureau of Labor Statistics. Wholesale and farm gate prices are taken from the USDA Agricultural Marketing Service. Conversion factors developed by ERS are used to convert retail weight to carcass weight equivalent. ERS calculates its price differences per pound of retail product. It takes 2.40 pounds of standard beef to produce one pound of retail beef and 1.14 pounds of wholesale beef to produce one pound of retail beef. For hogs, the conversion factors are 1.869 pounds of pork per pound of retail cuts and 1.04 pounds of wholesale cuts per pound of retail cuts. The gross farm values ​​in the price averaging tables are the farm gate price of live animals multiplied by the farm to retail conversion factor. Wholesale values ​​are the average price of the animal’s wholesale cuts of meat multiplied by the wholesale-to-retail conversion factor. High price differentials can often lead to frustration in various parts of the supply chain, from disgruntled producers whose stocks are down to angry consumers facing higher prices in the case of meat. Rising price differentials can inflate retail prices and deflate agricultural prices.

Beef

Figure 1 shows the retail, wholesale and farm gate values ​​of beef in retail weight equivalent. The impact of COVID-19 is evident in the peak in retail and wholesale values ​​in late spring 2020. (It is important to keep in mind that this is monthly data, so the weekly variations that we have covered in other articles are more difficult to distinguish.) However, as discussed previously, the shortage of processing capacity and the backlog of animals in the processing pipeline did not increase the livestock prices. Instead, wholesale prices soared more than 100%, while retail prices soared 25%. On the other hand, farm gate prices fell by 5%. Keep in mind that these values ​​have all been converted to an equivalent retail value, so they may not reflect the same magnitude seen in other reports.

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Figure 2 examines the variances between farm gate, wholesale, and retail values ​​shown in Figure 1. A price gap is basically the difference between the cost of an item at two different stages in the marketing channel. It can also be seen as the costs and benefits of the marketing system which moves the product from the farm to the processor to the consumer. Figure 2 shows three spreads: the farm to wholesale spread, as indicated by the red bars, the wholesale to retail spread, as indicated by the blue bars, and the farm to retail spread, the combination red and blue bars. For beef, COVID-19 resulted in the highest levels for all three price differentials since data was first collected in 1970. The farm-to-retail price differential peaked in June at $ 5.21 / lb of equivalent retail weight. The gap between wholesalers and retailers also peaked in June, at $ 3.86 / lb in retail weight equivalent. However, the farm-to-wholesaler spread peaked in May at $ 3.90 / lb in retail weight equivalent.

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Pork

The pork complex experienced a similar peak to that of beef, although to a lesser extent. Figure 3 shows three spreads: the farm to wholesale spread, as indicated by the red bars, the wholesale to retail spread, as indicated by the blue bars, and the farm to retail spread, the combination red and blue bars. COVID-19 has resulted in record highs for three price differentials for pork since data was first collected 50 years ago. The farm-to-retail pork price differential peaked in June at $ 3.65 / lb in retail weight equivalent. The gap between wholesalers and retailers also peaked in June, at $ 2.84 / lb in retail weight equivalent. However, the farm-to-wholesale spread peaked in May at $ 1.19 / lb of retail weight equivalent.

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The farmer’s share

The data also gives us the ability to calculate the producer’s share in the overall retail dollar. Figure 4 shows us the producer’s share of the retail dollar over the past 20 years for beef and pork. Since 2000, the producer’s share of the retail dollar for beef has averaged 47%, while the producer’s share for pork has averaged 27%. However, the value of both animal proteins has trended downward in recent years, dropping the average producer share to 42% in the last three years for beef and to 21% in the last three years for. pork. Of course, that decline started before COVID-19, but the pandemic has exacerbated this problem, leading to record lows for producer shares in retail dollars. At 31%, beef producers hit a record monthly low in June. Pork did not experience an all-time low, but at 14% it was near the all-time low of 12.3% (in December 1998) and is certainly the lowest in 20 years.

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While examining the producer’s share in the retail dollar is a useful exercise in examining trends and even the impacts of recent events, the nuances and context are warranted when citing the impact of this variable. For example, this is the producer’s share of the retail dollar and does not include consumer spending in the “food outside the home” channel, such as food purchased from restaurants. Additionally, these numbers and all calculations derived from this ERS dataset are simple average retail prices, not volume-adjusted retail prices, a more telling data point. These figures also do not include the impact of features and promotions, so they do not take into account the actual retail price paid by consumers, which is lower than the publicly available prices used in the calculations on the part of the producer.

Conclusion

COVID-19 has had a dramatic impact on the profitability of producers, the operations of packing plants, and the prices consumers pay at the retail level. Part of this impact is found in the price differentials of beef and pork at each stage of production. COVID-19 has led to record price differentials for pork and beef at all three points of farm-to-consumer processing: the farm-to-wholesale gap, the wholesale-to-retail gap, and the farm-to-consumer gap. closed to retail. It also had a huge impact on the producer’s share of the last retail dollar, resulting in a record share for beef producers and a near record high for pork producers. While parts of the supply chain have largely recovered from the disruptions experienced earlier in 2020, the overall impacts continue to reverberate through the various stages of production.