Thursday, July 26, 2012

Pork and Chicken Set to Join Luxury List

Get ready for pork and chicken to become luxury items.

Pork and chicken will join beef on the menu of expensive meats as drought and US ethanol policy combine in a corn “disaster”, the head of the world’s largest pork producer has said, FT reports.

The cost of the main ingredients in animal feed, corn and soyameal, have set records this month as the worst drought in half a century and extreme heat damages crops in the US, the world’s main surplus producer.

“Beef is simply going to be too expensive to eat. Pork is not going to be too far behind. Chicken is catching up fast,” said Larry Pope, chief executive of Smithfield Foods.

“I’ll use the word catastrophe – that’s my definition,” Pope told FT in an interview.

Pope warned US meat prices will rise by “significant double digits,”

Making matters worse is US government regulations. The US Department of Agriculture estimates almost 40 per cent of the US corn crop is consumed by ethanol refineries.
“It’s almost a government-mandated disaster here, which is distressing,” Pope said.

30 comments:

  1. Pass the Soylent Green, please...

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    1. mom uncle Harry tastes funny are you sure he was free range?

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  2. Global warmers will blame rising prices on meat-eaters. See, if only you'd eat your algae...or your Soylent Green. Too funny, Capn Mike!

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  3. I eat grassfed and pastured meats, so I already pay a lot for food. But the good thing is that this thing with corn shouldn't affect me too much.

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    1. Joseph,

      Make sure you get grass-finished meat, and not just grass-fed. Grass-fed livestock is finished on corn to fatten them up before the harvest, which pretty much negates the fatty acid profile of grass-fed livestock.

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    2. Grass fed cattle naturally eat grain: the grass seed found in the grass towards the end of the growing season.

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    3. Ed Ucation,

      I buy sides of beef and pork, as well as all of my poultry, from local farmers that I know. I've been on the farms and have seen their processes. I've even met some of the animals that I would eventually eat, which is kind of weird in a spiritual way. Every now and then I go to 'Whole Foods', most of their local sources are just as good, just more expensive. In a pinch I will get conventional, but it is typically the ultra-lean cuts (eye of round, round, top sirloin, etc) and then I will source my fat (for that meal) from elsewhere.

      While I do like dietetics and I keep up with the latest science in nutrition and human physiology, I also don't like to be too obsessive about it. Sure, be smart about things, but also realize that you haven't lived until you have *lived*, which sometimes takes a little bit of prying that stick from one's own ass. I personally go for a nice balance of strictness vs. carefree in pretty much everything I do.

      John G,

      Most of the farmers that I deal with use silage in the off-season. Also, in terms of mass, nutrition and energy, the amount of seed vs. other vegetable matter found in pasture grass is quite negligible when compared to the amount of seed in grain feed. Essentially, grain feed is concentrated corn matter (a seed), whereas grass has quite a bit of other matter, and much of what would be a seed is consumed before the ovules can turn into to a seed.

      Either way, cows were meant to graze, which results in a meat that has a great nutritional profile (esp. the fatty acid profile), a fantastic taste, and I seem to think that cows that get pasture-time tend to be happier cows overall. Nothing tastes better than a happy cow IMO.

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    4. Supple vs. demand dictates that even grass fed and free range - sourced meats will still see price increases.

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    5. Allan,

      The only way your statement would make sense is if one of three criteria were met:

      -the goods in question are homogeneous (that the goods are perfectly interchangeable)
      -the relative change in supply results in the price of conventional meats being greater than unconventional meats (pastured/grass-fed)
      -consumer preferences drastically changed due to non-economic factors (ethics, taste preferences, health concerns, etc).

      None of these criteria are met by your assertion that supply/demand dictates a rise in the price of unconventional meats due to a rise in corn/soy prices.

      While I cannot rule out every conceivable externality, I am pretty certain that no causal relationship can be found to show that a rise in the price of the inputs of one good will directly cause a rise in price of a good that does not use the same inputs, those inputs being corn and soy in this case. Also, the only reason that the price of conventional meats would rise due to an increase in input prices is if supply of the good in question, conventional meat, became more scarce as a result; or their was the future expectation of greater scarcity. All other things being equal, of course.

      It is these two factors (relative scarcity and future expectations of scarcity) that will likely come into play, and are probably the ones that Mr. Wenzel was thinking of when writing this post (though, I obviously cannot be certain). The value of any good's input is derived from the value of the good(s) to be consumed, so we cannot say that the increased price of an input will cause an increase in the price of a good (after all, if they could sell the good at a higher price, they would have already done so). However, we can say that shortages of an input can cause shortages of the consumer good if an equally serviceable substitute input is not realizable, or we can say that current shortages of an input can create the expectation of future shortages of the consumer good, thus causing an increase in price.

      Now, if you notice my initial comment, I did not say that the price of unconventional meats will be entirely unaffected by the shifting of productive factors that will result from the impact of shifting preferences, prices and valuations caused by a shift in the price of corn. After all, the economy is a very complex and interwoven system where at any given time a change to one section of the economy will inevitably have some impact on others (there are only so many resources at any given time to be used in satisfying innumerable ends). What I did say is that I don't think that the corn problem will affect unconventional meats. In other words, no direct causal relationship can be found between a rise in corn prices and a rise in the price of unconventional meats. However, it is true that the same drought that is causing the corn shortage may also cause a shortage of good pasture land, but that's a different discussion altogether.

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    6. Your analysis is partially true, but you can have a hybrid of points 1 and 3. People may know that grass fed beef is healthier, but if the price gap is too high for them to value those benefits more, then they will buy the cheaper stuff. if the price delta between grain and grass fed beef falls to below what people value the increased health benefits then they will make the switch. So given the price of grass fed beef A and the price of grain fed beef B, people will switch not if B>A, but if A-B > C. Where C is the value placed on eating healthier beef priced in dollars.

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    7. Anon 8:10,

      Yes, I should have been more clear that I was speaking in terms of at the margin and that there can exist a combination of the criteria that I mentioned. It's been a few years since I've studied anything having to do with economics, so I'm a little rusty on the subtleties. Plus, I'm not an economist, so it isn't as if I think about this stuff everyday.

      Indeed, the price of conventional meats can be less than that of unconventional, but that the marginal utility for unconventional meats is greater than that of conventional, thus resulting in increased demand for unconventional meats. It is much the same (well, the opposite really) as you would find when comparing the disutility of labor vs. welfare, where people are willing to take less money in exchange for less expenditure of labor (disutility at the margin). Either way, the claim that supply/demand dictates that higher corn prices will cause higher GF beef prices is false, at least in terms of showing a direct causal relationship.

      It was a small omission, but certainly one that is important. Thank you for pointing that out. In fact, I remember that popping into my head as I was writing that comment, it just never found its way to my fingertips. Eh, it happens.

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    8. I am one of those ranchers who sells grass fed beef. My beef (and everyone elses) is based on what it cost to raise it. The price of fuel goes up, so does the beef. The price of equipment goes up, so does the beef. The price land to raise beef goes up, so does the beef. If the price of corn goes up, the price of fuel goes up, the price of land goes up because more corn is grown, the price of equipment goes up because more is needed to till, plant, harvest the corn...the price of beef goes up.

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    9. Hey everybody Joseph's got it right, let's all pile into the grass fed meat, thank god it won't compete with the very dear prices of corn fed meat.

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  4. Let's see, that leaves squirrel, possum, ground hog, racoon, deer, rabbit, and one of my personal favorites - rat. Unfortunately, the only places you can find an abundant supply of rats these days is on Wall Street and in Washington D. C.

    Pass the poke salad, please...

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    1. But Bloombeurk banned rat hunting in NFY anyway.

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    2. Anon 7-26 That is spelled poke sallit. lol
      Anon 7-27 He didn't ban rat hunting, he just said you can't use a gun to do it while the rats still have theirs.

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  5. This is a perfect to stop eating GMO-ridden corn-fed meat and start eating grass-fed beef! It is actually good for you and now will most likely cost the same as corn-fed animals.

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  6. The rise in corn-fed beef will push up the price of grass-fed beef, as the demand for grass fed will increase.

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    1. I address this point above in my reply to Allan.

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  7. It will be difficult to find grass fed beef as the drought has also devestated cow/calf producers. The price of hay (if you can find it) has more than doubled which makes it uneconomical for many of us to stay in business. However, it does appear that we will have a good venison crop.

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  8. The buyers control the market. All people have to do is refuse to pay the prices, and the stores have two options: lower the prices and make less, or let the stuff rot and make nothing. Guess which one they'll pick?

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    1. They let it rot during the depression....read Rising Prices, Empty Shelves..by Bill Heid. They will undoubtedly get bailed out with fiat money anyway.

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  9. Why isn't anyone talking about the ethanol that is wasted in gasoline, so we get lower mileage and higher food costs. It's another of the goverments requirements that effect us all in the pocketbook. It's a waste of a good food source.

    Anonymous

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    1. From the body of the post that you just commented on:

      "Making matters worse is US government regulations. The US Department of Agriculture estimates almost 40 per cent of the US corn crop is consumed by ethanol refineries.
      “It’s almost a government-mandated disaster here, which is distressing,” Pope said."

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  10. @Josheph Fetz....so if you haven't studied economics in a few years, and you are not an economist, then why did you feel it necessary to conjure up such a long winded response? If corn fed meat prices become higher than grass fed, people with limited income will buy the grass fed meat. People will buy whats cheaper when they need to. Simple and to the point.

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    1. Grass fed, corn fed, silage fed, grain fed, Hostess twinkie fed. It all goes up when there is a shortage. Stock up on alpo or eat that hot dog!

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  11. We have been systematically fed with drought results in North America, but no-one is giving us details in the rest of the world, such as Australia, Brazil, Russia and Argentina. Have they had droughts, what kind of crops have they had, or are we being fed negative info. so that high prices are easier to stick the public with!

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  12. I find this discussion disturbing, interesting, and somewhat comical. But! It's like a friend of mine has coined the phrase "Bastard on a Stick" roasting on an open fire. When the system breaks totally down and you can't even buy the meats at the store anymore, what happens then? The Solent Green was truly funny but could become a reality!!

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