Washington Evening Journal
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AMES — At every level of the production chain, the pork industry looks different from two years ago. Retail prices skyrocketed along with every other household item. The cost of production has climbed around 50%, according to economists. Supply chain issues persist, but have had time for the market to adapt.
Iowa State Associate Professor and Extension Economist Lee Schulz said the worst price spikes were likely over, but that doesn’t mean prices will necessarily go down.
“There isn’t an anticipation that we’re going to see another doubling of corn prices and feed prices, for example,” he said. “We’re still at historically high costs, don’t get me wrong … My comment is, we’re not going to see a doubling of that cost again, (or) these escalating prices, we’re going to see prices likely remain at these high levels, and we could see some increases going forward. But not the sticker shock that is leading some of the stories.”
A number of considerations explain that prediction. For one thing, meat retail prices tend to change slowly because sellers bank some reputation on their consistency.
“If I’m going in to buy pork, I like to have a good idea of the price for that pork,” he said. “If that price is fluctuating greatly from week to week, and time to time, that impacts consumer loyalty.”
For another, pork producers can’t adapt to market changes as quickly as most industries. Growing more animals takes at least a year for pork and beef producers.
“It’s not going to be instantaneous,” he said. “Biologics of the industry say it takes about a year in pork, it takes years in cattle.”
Many issues driving the price spikes still exist, even if they likely won’t have such a radical impact all at once.
“We’ve seen certainly a big increase in energy prices, we’ve seen increases in everything,” he said. “We’re comparing to year-over-year levels right now, and that’s where we’re seeing double-digit inflationary things. But comparing this year to next year, we’re not expecting to see that again.”
Through it all, pork’s retail value has shown some stability compared to skyrocketing price tags on other protein. All else being equal, Schulz said a decline in international demand meant extra domestic supply, a factor that balanced against things like inflation.
“We have seen pork exports wane here in 2022,” he said. “If you’re sending less on the export market, that means more is staying on the domestic market … so with more product available, I think that has stabilized prices for pork more domestically compared to beef.”
Retail price growth doesn’t necessarily mean profit growth for pork producers, even if revenue goes up. Schulz said input costs were up at an equally alarming rate.
“Producers don’t respond to prices, they respond to profit,” he said. “Even though we’ve seen really high prices this summer … we’re dealing with the highest cost we’ve ever seen in the industry. And so that narrows margins considerably.”
Schulz said the same input costs were up for every part of the industry, facing more expensive feed, energy, labor and transportation. That means there’s likely not a “middle man” getting rich from the changes.
“Higher prices are offsetting higher costs throughout the supply chain,” he said. “When we’re trying to pit different sectors of the industry against each other and compare profits, that’s a very dangerous thing to do, especially when markets are very dynamic right now.”