Food Costs Rise, Pork Cutouts Up 75%, Class III Milk Above $17

Written by Aaron Wise
Monday, June 1, 2020 at 12:09pm CDT

As if restaurant owners needed anything more to worry about, meat and dairy prices have been increasing. The national standard for pork prices, the “cutout,” is up 75% since April 9. The Lean Hog Index, a gauge of the cash market traded on the Chicago Mercantile Exchange, is up about 19% over the same period. For the first time in history, Vietnam is importing live pigs for slaughter “as the country grapples with record prices of hogs and pork.”

The spike in protein prices comes even since Trump invoked the Defense Production Act on April 28, which mandates meatpacking facilities to remain open across the U.S. In late April, beef prices began to skyrocket, prompting Costco to limit beef purchases and some Wendy’s restaurants to eliminate parts of their menu altogether. Tyson Foods purchased full-page advertisements in the nation’s biggest newspapers, warning that its supply chain was under emergency duress. Major meat processing companies released dire predictions about the ability of restaurants to serve meat at economical prices.

Although supply is now technically guaranteed by Trump’s order, prices are still rising. Moreover, the price squeeze is not just limited to meat. For example, Class III milk is above $17 from around $11 a month ago. Since the beginning of May, butter has increased $0.45 per pound and nonfat dry milk is up $0.20 per pound. A boom in home cooking in Scotland drove egg sales higher by 30% and “a significant shortage of supplies at all levels, including supermarkets.”

Analysts agree that there are three main drivers of higher meat and dairy prices. First, major government buyers are now coming into the market. As part of its new Coronavirus Food Assistance Program, the United States Department of Agriculture (USDA) announced last month that it would increase so-called Section 32 purchases of dairy for July delivery by $120 million. USDA is also purchasing at least $317 million of dairy products for its Farmers to Families Food Box Program, for delivery from May 15 through June 30. Plus, USDA will purchase $68 million in dairy through its Food Purchase and Distribution Program “to mitigate the impact on farmers of unjustified trade retaliation by foreign nations.”

The second catalyst for higher prices is the mass reopening of restaurants, driving increased consumption. Over 46 states now allow dine-in service at restaurants. OpenTable data shows U.S. restaurant patronage “improving” to -83% today versus the -99% low during the trough of the pandemic. According to Sysco CEO Kevin Hourican, “the challenges we’re facing will be short-term in nature” and he expects a full recovery for school and restaurant food purchases by this fall.

Finally, supply is artificially limited due to COVID-19. Farmers have already euthanized 400,000 hogs this year. The Centers for Disease Control and Prevention has confirmed thousands of COVID-19 cases throughout the country’s 115 meat processing plants.

From a low of $220 in early April, the price of USDA boxed pork carcass cut exceeded $470 by early May. “We’re looking at sticker shock,” explained the President of U.S. Commodities in Iowa. Beef prices underwent a similar rally over the last month.

Photo by Changyoung Koh on Unsplash