Meat prices peak as restaurants return to full capacity

As I searched out data on rising meat cut-out prices and restaurant activity for this column, the song Celebration by Kool and the Gang began to play in my head.

“There’s a party going on right here.

“A celebration to last throughout the years.”

COVID vaccination rollouts are going well in Canada and the United States, and the restrictions that protected us, but also stole so much joy from our lives, are lifting.

In some American southern states, such as Florida and Texas, crowds are again gathering. Open Table, an app that allows users to make online restaurant reservations, tracks data on restaurant use and it shows that in May restaurants that were open in those two states enjoyed patronage above pre-pandemic levels.

Jurisdictions across the rest of the U.S. and Canada are setting targets and dates for restriction relaxation and I expect the pent up demand for dining out and socializing at restaurants and bars will follow a path similar to that seen in the southern states.

So while the party might not be enjoyed everywhere yet, it appears to be on the way.

And that reviving restaurant demand partly explains why the pork cutout in the U.S. on June 8 hit a seven-year peak. The thinly traded June futures contract also hit a seven-year high.

Of course, the higher hog price does not translate directly into higher producer profitability because feedgrain prices have soared as have other costs, sharply eating into profit margins.

Back in April as hog prices climbed, I noted that one of the reasons was that the U.S. hog herd was smaller than what was forecast at the start of the year. Sow farrowing numbers for the summer were expected to be down four percent from last year at the same time.

Jim Long, chief executive of pig genetics firm Genesus, notes supply is also suffering because some American producers are struggling with higher than normal disease levels in their herds.

He also notes that even as pork cutouts rise, the meat is attractive because beef cutouts are also exceptionally strong.

Last week, the Choice beef cutout at around US$338 per hundredweight was almost three times higher than the pork cutout.

And chicken, usually the cheaper meat alternative, has also experienced shortages that drove up the price.

This is the time of year when beef and pork cutouts normally climb to their highest level as retailers stock up for the barbecue season generally and particularly for the July holidays on both sides of the border. Prices usually back down later in July as we get into the hottest days of summer.

But I wonder if the decline this year will be less than usual because it will come at the same time that indoor dining capacity restrictions end.

Diners might suffer sticker shock over menu prices, but many people who were able to work from home during the pandemic saw their financial situation improve and might be willing to shell out for celebratory dining, at least during the summer before life returns, we hope, to normal this fall.

Another factor that supported pork and hog prices earlier this year was the elevated pace of pork exports, particularly the strong movement to China.

But it appears that recent sales to that country have fallen. Early this year China watchers in North America questioned claims that African swine fever had been controlled.

It might not be beaten, but pork prices have fallen by half since January and hog prices are barely covering the cost of production, according to a story in the South China Morning Post.

The Chinese government said it would step up the amount of domestic pork it buys when there is a surplus to support the hog price paid to producers.

With lower pork prices in China and prices in North America higher than competing exporters in Europe and Brazil, less North American pork has gone to the Asian country in recent weeks.

The latest monthly data on export destination is for April. It shows that some of the decline in movement to China was offset by increased exports to Mexico and the Philippines.

It is hard to say how the rest of the year will shape up for Chinese meat import demand.

The newspaper story also notes that one of the reasons for the current surplus of pork on the Chinese market is that recent ASF outbreaks caused producers to panic sell. If so, it would be a repeat of the early days of the ASF outbreak when herd culling led to temporary oversupply of domestic pork but then later on there were pork shortages and high prices when producers tried to rebuild herds.