Source:  Tom Johnston, MEATINGPLACE.COM, 9/21/10

USDA Meat Price Spread data published Friday showed retail prices for pork in August set a record for the third straight month, while beef and chicken prices hovered near respective 10-year highs.

But with the spread for chicken prices inching down somewhat, some analysts wonder about the sustainability of high prices for beef and pork.

“The spread earned by retailers on beef and pork were high, which bodes well for grocers’ willingness to keep paying higher wholesale prices, though chicken dipped a bit,” JP Morgan analyst Ken Goldman wrote in a note to investors. “At this point, we believe that upside in retail pork and beef prices are mostly hinged on the ability of chicken to stay pricey in 2011.”

Particularly interesting, notes Goldman, is that retail pork prices relative to retail chicken prices are near 10-year highs. “This to us presents the greatest challenge to higher retail pork prices, as some consumers eventually will trade down to the cheaper meat.”

The same goes for beef prices relative to chicken prices. Goldman projects chicken prices could dip in 2011 when Sanderson Farms opens its new processing plant in Kinston, N.C., and boosts supplies.
Nonetheless, the current situation is a positive for meat processors, Goldman said.

“All else equal, the higher the retail prices and spreads travel, the more that grocers will be willing to pay for meat on a wholesale basis,” he wrote. “Higher wholesale prices are good for revenues and margins of processors such as Tyson, Smithfield and Sanderson Farms.”

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