Higher meat prices in store for consumers

Have you noticed the price of meat lately? Mirella and Frank DiGenova certainly have they sell the stuff. And experts say high meat prices are likely going to get worse before they get better.

Mirella DiGenova is the owner of Butcher By Nature, a family-run food shop in Toronto specializing in organic and naturally raised meats. She says the high cost of meat is cutting into her profits.

"It affects me because I have to sell it and there is just so much I can mark up my meat. I mean, I don't want to scare away my customers," DiGenova says.

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In fact, the high grocery shelf prices for meat don't reflect the true magnitude of the price increases seen for livestock in recent months.

"We have the monthly data back to 1998," says Scotiabank's senior commodities expert and vice-president of economics, Patricia Mohr. "There's nothing anywhere near that high."

Like many meat retailers big and small, record-high prices have forced DiGenova to try to swallow part of the increase. She's been cutting her own profit margin to avoid losing sales. That's especially difficult in the organic food sector, where prices are already about 30 per cent higher than for non-organic fare.

It is not just organic retailers that are suffering. According to Mohr, livestock prices have stayed too high for too long butchers and grocery store owners can no longer continue to hold retail prices down. And that means consumers will soon be feeling the pinch.

"This year cattle prices have moved up to record highs on both sides of the border and it's starting to impact meat prices at the grocery store," says Mohr.

There has been about a six month period where "stores were not passing along higher prices of the basic cattle to consumers because, of course, of the negative impact on consumer demand," says Mohr, echoing DiGenova. "But the industry has reached the point where higher cattle prices have to be passed along."

Rising meat prices in the U.S. are already beginning to affect American consumers. According to the Wall Street Journal, even the rich are starting to change their meat buying habits.

"We get used to ups and downs in meat supply, but current costs for beef are higher than Ive ever seen in my 41 years at Wegmans," writes Mary Ellen Burris, vice-president of the U.S. grocery chain.

Culling herds

High meat prices are essentially a question of supply and demand. The global appetite for meat continues to grow as the middle class in developing countries grows richer.

We now have a situation where the size of the cattle herd across both the U.S. and Canada is at its lowest level since about 1973.- PatriciaMohr, Scotiabank

At the same time, high feed costs in the past several years and persistent drought in the U.S. have driven farmers to cull herds in traditional cattle country, including Texas.

"We now have a situation where the size of the cattle herd across both the U.S. and Canada is at its lowest level since about 1973," Mohr says.

The pork industry is more complicated, says industry analyst Kevin Grier.

Pork prices hit a record this summer when Porcine Epidemic Diarrheaor PED decimated U.S. herds. The disease, which is not transmissible to humans, swept through 27 states killing virtually 100 per cent of piglets under two weeks old. It was hard to contain. Grier says uncertainty over future supply pushed pork prices to new records.

Last month's ban on Canadian pork by Russia was supposed to have the opposite effect. But while pork prices are now off their extreme highs, they are still higher than they were last year.

Grier says Canadian exports to Russia are mostly ham, which he predicts will soon find new buyers as Russian consumers vacuum up supply from other countries.

Meanwhile, he says, the price of pork loin, ribs and other cuts Canadians typically buy at the grocery store are hardly affected by the Russian ban. Part of the reason for rising pork costs is actually the high price of cattle, as shoppers substitute pork and chicken for pricier beef.

In the world of supply and demand, high prices can't stay high forever. When a product is selling at a premium it's an incentive to boost production and it also tends to attract more suppliers, which ultimately boosts supply and competition for buyers. As University of Guelph agricultural economist Alfons Weersink told me, "The best cure for high prices is high prices."

A perfect example is the price of cattle feed, of which corn is a primary ingredient. Driven up to $8 a bushel last year, corn has come down with a crash becausefarmers around the world planted more acreage to take advantage of record prices.

Good growing seasons in the U.S. and China have caused prices for feed to fall to less than $4 a bushel. That has driven down farm incomes for corn producers in the U.S. and Canada to what Mohr says is near or below critical "break-even" levels for Canadian farmers.

With meat prices high and feed costs low, "livestock producers are making good money," says Kevin Grier.

And in keeping with Weersink's analysis, that means producers are gearing up to expand their herds. Higher production should bring meat prices down eventually, providing consumers with some relief.

But don't hold your breath.

Bringing livestock herds back to traditional levels will take years. And Grier says it will require producers to hold back breeding cows from the slaughterhouse, forcing meat prices even higher before they begin to moderate.

Scotiabank's Mohr agrees that consumers should not expect relief any time soon.

"It takes nine months to produce a new calf," says Mohr. "And really it takes a year and a half before you have a calf that is ready for markets. So meat prices at grocery stores, particularly for beef, are probably going to stay quite high."

The only other way that meat prices will come down, says Grier, is if "consumers get fed up with high prices" and start buying significantly less.