Wednesday, April 30, 2008

Look for MUCH Higher Meat Prices (after they drop)

Last week we reprised our intro to meat markets course, with a Harvard fillip:

No not Harley-Davidson, although I imagine some econ grad student has written the paper.
Wheat and hogs are two commodities with long price series. We mentioned the hog cycle back in January:

The hog price series is one of the longest we have records for, back to the 1200's. The cycle is:
slaughter begets scarcity begets higher prices begets breeding begets over-supply begets slaughter. It's been going on for a while.

Today Professor Mankiw tips us to a government subsidized variation:
A Bad Time to be a Pig

Chapter 5 of my favorite economics textbook talks about how...


We just got another confirmation of the effect from MarketBeat, this time regarding the 22% pop in Buffalo Wild Wings:

...One might expect that the dramatic rise in prices for corn and other feeds would contribute to a jump in chicken prices, but it has had the reverse effect. “Many raisers are finding it less costly to slaughter than to feed livestock,” writes Stephen Anderson, analyst at MKM Partners.

Because of that, the excess inventory, if you will, has contributed to lower prices than expected. Buffalo Wild Wings, which posted an 18% increase in revenue, said second-quarter spot wing prices are likely to average about $1.20 per pound in April and May. By contrast, in the second quarter of 2007, prices averaged $1.25 a pound. J.P. Morgan Chase & Co. analysts note that the company had outstanding contracts for jumbo wings, which expired in March — just as prices were beginning to decline.

Demand trends may be contributing to the soft prices of late, in part because of the resurgence of concern about avian flu. The Georgia Department of Agriculture said in a weekly release that demand for wings is currently “normal to light.” Georgia dock quoted spot prices for wings fell to $1.06 a pound as of Wednesday, the lowest weekly quoted price for wings since the week of Dec. 20, 2006.

However, Mr. Anderson believes the softness in prices will not last. “As this increased supply of chicken wings is worked off in 2Q, we expect wing prices to rebound beginning in 3Q and continue rising into 2009 amid dwindling supplies,” he writes....