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Meat prices reflect supply and demand

Meat prices reflect supply and demand

Meat prices reflect supply and demand

Published on Jul. 7, 2010

Consumers may be in the driver's seat when it comes to higher meat prices. Indications are that retail meat prices may rise to record highs later this year, according to a University of Kentucky agricultural economist, and it all rests on that bedrock of free market economics--supply and demand.

Between 2000 and 2008, the beef, pork and poultry industries were producing record high quantities. Normally, with supply high, prices would tend to be lower, but demand was also high-driven by a strong economy and positive attitudes toward meat, some of which grew from dietary trends like the Atkins diet. In that time period, per person consumption of meat was more than 220 pounds annually, said Lee Meyer, extension professor in the UK Department of Agricultural Economics. So strong demand from consumers forced prices up to record levels.

Fresh beef prices hit $4.11 per pound and pork prices rose to $3.03 per pound in September 2008, and two months later, chicken prices climbed to $1.79 per pound.

"Then two things happened," Meyer said. "First, as corn was moved into the ethanol fuel channel, prices escalated and livestock producers began losing money because their feed costs were so high. Initially, more livestock went to market, increasing the supply. Second, the recession hit and meat demand declined because of the weak economy."The combination of the two resulted in a price drop last year; beef and pork dropped 8 percent, and chicken prices were down 6 percent.

"But as producers lost money, they reduced production, and so less meat is now on the market," he said. "In addition, the economy is recovering, and consumers have a much more positive attitude. Tight supplies and stronger demand suggest higher prices."

Meyer foresees slaughter cattle and hog prices being near record levels this year, but ultimately, consumers hold the key to consumer prices. If the economy recovers and consumers spend more on meats-especially in restaurants-he sees prices possibly moving to record levels later this year.

"Chicken prices might be an exception. Weaker exports could leave more chicken on the domestic market, and that higher supply could give consumers some relief," he said.

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