Source:  Rita Jane Gabbett, MEATINGPLACE.COM, 12/17/10

USDA’s November Meat Price Spreads data showed retailers continued to earn
excellent gross margins, which JP Morgan analyst Ken Goldman saw as good news for pork, beef and chicken processors.

“This suggests that grocers have little immediate need to push back on wholesale prices, which is positive for processors,” Goldman wrote in a note to investors. “Also, consumers continue to accept higher prices, which we think bodes well for the entire food manufacturing industry (packaged food included).”

Goldman said he does not expect retailers to start featuring a lot more chicken because the difference between retail beef and chicken prices is now back to normal and retailers are still making good margins selling pork and beef.

“The argument that high-priced beef and pork will incent retailers to feature chicken in favor of beef or pork is starting to lose some validity to us,” he wrote.

For pork, Goldman noted retail pork prices remain well above both the 10-year average and last year’s level, giving retailers a wide spread between what they pay wholesale and the price at which they are selling pork products. “The better the spread, the more likely the average grocer is to feature the item and/or be willing to pay up for it, so the better for processors such as Tyson and Smithfield Foods,” Goldman wrote.

Pork continues to climb as a percentage of retail beef and chicken prices. Goldman said this poses the greatest challenge to higher retail pork prices as some consumers eventually will trade down to the cheaper meat.

Retail beef prices also remain at 10-year highs, giving retailers a solid spread and boding well for beef processors, “since it suggests that grocers will continue to feature beef and/or be willing to pay higher than usual wholesale prices.”

Retail chicken prices set a 10-year high for the month in November. The spread earned by the average retailer from selling chicken is starting to rise steeply, so this may bode well for chicken's chances of being featured, Goldman predicted.

“We continue to read the data as positive for all of food. At least in the meat case, retailers still are not pushing back much on processors’ need for pricing, and consumers continue to accept price increases,” he concluded.

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