Food producers are feeling the heat as the cost of red meat continues surging, but analysts anticipate the trend likely will cool later in the year.
Prices of beef and pork have surged over the past several months, with food producers and consumers alike feeling the heat. However, market intelligence from BMO Economics indicates those figures (currently at a 30-year high) could drop off before the end of the year.
High meat prices
Aaron Goertzen, economist for BMO Capital Markets, told FoodProductionDaily hog and cattle prices are up 18% and 24% respectively from this point last year.
“After adjusting for inflation, hog prices are now at their highest since the mid-1990s, while real cattle prices are higher than they've been since the early 1980s,” he said.
One factor affecting the speed of the recovery in prices: to expand supply, cattle ranchers first have to restrict the supply for breeding purposes. Furthermore, hog prices have been hit by a virus in last year’s herd, estimated to have felled approximately 7m piglets.
Feeling the pinch
Goertzen said while shoppers are feeling the pinch at the cash register, but they share the burden with others on the meat supply chain.
“Consumers are not alone; food processors, grocery stores, and the restaurant services industry have all have seen margins come under pressure as wholesale meat prices have risen,” he said. “Hog and cattle farmers, on the other hand, are enjoying a much-needed renewal in profitability after several extremely tough years.”
US vs. Canada
Not all North American countries are feeling the same effects. Goertzen pointed out red meat prices have risen more in Canada than the US, thanks to the state of the Canadian dollar and other factors—tough for consumers, but good news for cattlemen and processing equipment suppliers.
“This period of profitability will allow farmers to invest in their businesses with purchases of new equipment and facilities,” he said. “This reinvestment will drive growth in not only the Canadian red meat industry, but also in rural communities coast-to-coast.”
Goertzen added BMO economists expect pork prices to rebound by late 2014. Cattle prices may take a bit longer but should turn around in 2015.