1. Vol. 10, No. 183 / September 21, 2012
INFLATION IN PORK WHOLESALE PRICES(PPI) AND RETAIL PRICES (CPI)
Market Comments YEAR/YEAR % CHANGE IN THE TWO PRICE INDEXES
40.0%
The Bureau of Labor Statistics recently published the
results of its August price surveys, offering the latest reading on 30.0%
prices at both the producer (PPI) and consumer level (CPI). PORK
PPI
At the retail level, the data shows that food price inflation contin- 20.0%
ues to outpace overall inflation in the economy. Meat price infla-
tion, also is outpacing the overall inflation in food prices. The 10.0%
trend, however, has been for food prices to grow at a slower pace
than earlier in the year. Some items, such as lamb and pork, actu- 0.0%
ally have seen a dramatic decline both in terms of wholesale prices PORK
and prices at the retail level. The Consumer Price Data (CPI) -10.0% CPI
shows that while overall price inflation in the US in August was
hovering around 1.7%, food price inflation was at 2% (compared to -20.0%
4.7% in Q4 of 2011). Food inflation at retail has slowed down con-
siderably and it was pegged at 1.47% in August while food infla- -30.0%
tion at foodservice continues to run at around 2.8%, about 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
the same as earlier this year. Price inflation for a number of
protein items continues to be quite strong. Beef and veal prices at
the retail level rose by 5.8% in August, while prices for chicken INFLATION IN BEEF WHOLESALE PRICES (PPI) AND RETAIL PRICES (CPI)
YEAR/YEAR % CHANGE IN THE TWO PRICE INDEXES
and chicken parts were up 5.9%. Turkey prices were up 7.2%. In 60.0%
contrast, prices for pork at retail were 0.1% lower than a year ago
while lamb prices were down 4.4% from a year ago. 50.0%
BEEF
As we have noted in the past, there are lags in the trans- 40.0%
PPI
mission of higher (or lower) livestock prices to the consumer. The
charts to the right show the year over year change in prices for 30.0%
beef and pork both at the wholesale and retail level. For wholesale
prices, we used the Producer Price Index for pork and beef while 20.0%
for retail prices we used the Consumer Price Index for these two
species. As you can see, the swings in the pork market are much 10.0%
more dramatic given the more pronounced cyclical performance of
0.0%
hog prices. Pork producers are much more responsive to changes BEEF
in profitability than beef producers given the relatively shorter -10.0%
CPI
production span (12-18 months for hogs vs. multiple years for cat-
tle). Generally the decline in wholesale pork prices is followed by a -20.0%
decline in retail prices as well, although the response is not imme- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
diate given the propensity of retail meat prices to be sticky. Also,
the magnitude of the decline (or increase) in pork prices is not as
large as at the wholesale levels since at the retail level the price of margins by cutting back production. In 2009, pork prices at the
the raw material makes up a smaller share of the sticker price. wholesale level fell by as much as 23% only to bounce back 30%
The recent break in pork prices needs to be placed in the context the following year. We will likely see further declines in the
of other such occurrences in recent years. Normally the break in pork PPI in the final quarter of 2012 but the expectation is for a
wholesale prices is followed by a sharp reversal and significantly sharp rebound next year and possibly the following year as well.
higher prices in the following year. Producers respond to negative
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