Current Situation and Analysis - 5/21/2015

Friday, May 22, 2015

    According to USDA-AMS national weekly boxed beef cuts report, since the first of the year wholesale Choice loin strip prices have increased by just over $3.15 per pound, to sit at $9.38 per pound. This was a new weekly record high for the wholesale cut. Seasonally, it is normal to see an increase in the price of middle meats starting in the spring and peaking around beginning of July, as demand increases during grilling season and over holidays such as Memorial Day and Fourth of July. Middle meats are mostly high value cuts like steak and Prime Rib from the mid-carcass area. The Choice cutout (carcass equivalent wholesale value) has increased from $244.43 per cwt. the first of the year to $258.87 per cwt. as of May 15th. Additionally, the comprehensive Choice cutout experienced a new record monthly price in April at $254.02 per cwt.

    Digging further into this wholesale price increase, and the relationship with the cutout value, it becomes obvious that since the start of the year, middle meats have been carrying the increase in the beef cutout value. This is also seasonally normal, for the same reasons as stated above. However, the degree to which the middle meats, and specifically the loin, are contributing to the overall carcass value is increasing more so than what the historic trend suggests. By calculating the value contribution of the Choice primal loin to the cutout through primal value (currently $381.15 per cwt.) and its weight contribution (21.25% of the carcass), the loin currently accounts for about 31% of the cutout value.

    Historically however, the primal loin contribution to the cutout value has been on a decreasing trend since 2006. The current 31% contribution is the highest ratio since April of 2013 and is the result of the loin value increasing relatively more than other primal cuts, supporting a higher cutout value. This could also signal a turnaround in the trend of middle meat contribution value to cutout value and definitely speaks to current strong consumer demand for middle meats, even at record high prices. 


    USDA’s Economic Research Service (ERS) publishes annual calculations that indicate the general reliance of individual state agricultural sectors on export markets. Those calculations are based on U.S. farm sector cash-receipts data, since a State’s actual agricultural export value cannot be measured. Further, U.S. agricultural commodity exports are often produced in inland States and may transfer through several processing stages and marketing points before even arriving at a port. Details that can be studied are somewhat limited because there must be both publically available data on sector cash receipts and comparable summaries of exports. Still, the calculations provide useful insight about the general state-level linkages with exports and the sectors involved. For details, see the USDA ERS webpage: .

    The latest ERS summary is for calendar year 2013. Agricultural commodity exports that year totaled $144.4 billion. In the 10 year period from 2003 through 2013 export value grew by $85.0 billion. Note it is unclear how well the export categories capture some highly processed consumer products that contain products of animal agriculture, such as soap and gelatin.   

    ERS develops 21 agricultural commodity export categories, six of which are animal related: 1) beef and veal ($6.1 billion); 2) pork ($6.1 billion); 3) hides and skins ($3.1 billion); 4) other animal products ($3.6 billion); 5) dairy products ($6.7 billion); and 6) poultry products ($6.5 billion). In 2013, those items had an export valuation of $32.1 billion or 29% of the total for all agricultural commodities. In terms of all animal-based products the top state was Iowa, rounding out the top five in order were: Texas, California, Nebraska, and North Carolina.

    For 2013, ERS ranked Nebraska as the top beef export state at $949 million, followed closely by Texas. The leading pork export state, by a large margin at nearly $2.0 billion, was Iowa. Two states dominate dairy product exports, California ($1.3 billion) and Wisconsin ($924 million). States in the southeast part of the U.S. have major ties to poultry export markets, with Georgia first ($757 million); followed by North Carolina, Arkansas, and Alabama, each of which exceeded $500 million.        


    In April, data from the U.S. Department of Commerce showed combined retail sales from foodservice, restaurants, and grocery stores were 4.8% above a year earlier. That was similar to the 5.0% increase posted in March. The April increase is more impressive when compared to two years ago (2013), sales on that basis were up 10.0%. The majority of the April gain came from the foodservice and restaurant category, which was up 8.6% from a year earlier. In contrast, grocery store sales only gained 1.0% year-over-year, which was the smallest increase since March 2014.

    Even though food sales remain very strong, the pace of growth has moderated in recent months. During the winter quarter all categories of food sales reported by the government were up 6.0% compared to a year ago, with foodservice/restaurants jumping 9.5% and grocery store sales up 2.8%.  In the second quarter of this year, all food sales are projected to have a growth the rate of about 4.5%, which is still good. The pace of payroll expansion in April raises some concerns about how much disposable income will grow in coming months and could significantly moderate the rate of growth in food spending during the balance of this year.

    Non-farm payrolls this April increased by 840,000 jobs from the prior month, on a non-seasonally adjusted basis. The comparable number for last April was a 1.16 million job increase and the April 2013 increase was 1.00 million jobs. Average weekly earnings this April were 1.5% higher than a year ago, a slightly smaller increase than in March and down from the 2.3% gain recorded in the winter quarter. Disposable income growth was up 4.1 percent during 2015’s winter quarter, but the April job market trends will likely not support the disposable income gain remain at that level, in fact a likely range for that metric is 2.0% to 3.0%.

    Payroll and income trends could translate into consumer spending on food. The current spending trend would indicate, for the balance of this year, a more modest increase in retail sales from foodservice, restaurants, and grocery stores than during the first four months of 2015. Still, growth in foodservice/restaurant spending is expected to continue to outpace that of grocery stores. That spending pattern indicates prices at wholesale levels of meat and poultry items sold by restaurants could benefit compared to items more tied to at home consumption.