After growing up in the livestock industry and trading the same products on the floor of the CME, I have to say this hits the point of how bad our govt agencies are in the process. My dealings with them when I was running the livestock complex at the CME were scary. I will not go into details here as those are confidential. The reason for this "perfect storm" on rising meat prices is purely supply/demand driven and throw in COVID. It seems Biden's team is just clueless to this point. And your point on building a packing plant....after you spend the $300M to build it you have to find employees and workers to staff it. Good luck on that investment. It paid off these past few years thanks to Covid but wait until our meat supply shrinks over the next 24 months....the packing industry will be chasing livestock to slaughter. I keep shaking my head here.....
I grew up remembering the oil and gas shortages/lines of the 1970s and 80s. OPEC was a dirty word. A cartel that limited supply and raised prices. Strange people today can’t see the OPEC in so many fields around us: education, healthcare, etc.
I think their goal is for everyone to use less by making it all more expensive. Right? They are the planet's divine saviors, let us not forget! I'm on a diet and drive a high mileage car, so they can't ruin my parade. Insightful post, thanks.
i could spend hours on this topic. I grew up on a family hog farm in Central IL and have been and livestock/meat analyst for the last 17 years.
The Chicago Stockyards used to have a satellite yard in Atkinson, IL. The structure still exists, and the sign still says Chicago Stockyards. My dad's neighbor operated a hog order buying business there from the 1960's through the late 1980's. He told me once that it was Reagan that stomped on the hog industry. First, he bailed out IBP in the 80's, second he provided IBP with immigrant work visas that the rest of the industry did not have access to.
What is most concerning to me is not so much the consolidation that has taken place, but the foreign ownership. The largest hog producer is owned by the Chinese, the largest cattle processor is owned by the Brazilians. JBS has also bought out Cargill's hog and pork businesses. I believe that JBS is also deep into the poultry industry. The consolidation is bad, but foreign ownership of our food supply is worse.
With regard to meat prices, there is a very precise relationship between per capita disposable income (which has repeatedly set new records in the last 2 years thanks to direct gov't payments) and retail meat prices. The Biden administration is doing all they can to deflect. They need to blame someone else - anybody but themselves. But when you hand out money, prices must adjust.
Final topic in the meat markets that I do not currently have a handle on is California's Proposition 12, which went into effect on Jan 1. This law was voted in by the people about a decade ago. It specified space requirements for livestock production in CA. It put the CA laying hen business out of business. It also specified that starting Jan 1 2022, that all pork and eggs imported into California has to be raised according to Prop 12 compliance. In June, The National Pork Producers Association estimated that just 1% of US pork production was Prop 12 compliant. This means CA will run out of pork - prices will soar, while the rest of the country will be oversupplied and prices will fall. CA is the largest pork importing state.
A farm close to where I live is in the process of transitioning to Prop 12 compliance. This sow farm used to be a 5,500 head farm. After transitioning to Prop 12 compliance, it will be a 3,500 head farm, because of the additional space requirements per animal. This farm is reducing capacity by 36% to be able to sell pork into CA. What does that tell you about their expectations for price?
After growing up in the livestock industry and trading the same products on the floor of the CME, I have to say this hits the point of how bad our govt agencies are in the process. My dealings with them when I was running the livestock complex at the CME were scary. I will not go into details here as those are confidential. The reason for this "perfect storm" on rising meat prices is purely supply/demand driven and throw in COVID. It seems Biden's team is just clueless to this point. And your point on building a packing plant....after you spend the $300M to build it you have to find employees and workers to staff it. Good luck on that investment. It paid off these past few years thanks to Covid but wait until our meat supply shrinks over the next 24 months....the packing industry will be chasing livestock to slaughter. I keep shaking my head here.....
.
As usual, a brilliant, fact-rich, detailed, knowledgeable analysis evidencing both intellectual curiosity and critical thinking.
The gov't and more moat-building regulation is NEVER the solution. Competition is almost always the solution.
JLM
www.themusingsofthebigredcar.com
“The answer to higher prices is simple. We need more competition.”
True always and everywhere, yet unknown to most people most of the time.
Health care? Education?
Monopolies and cartels raise prices and reduce supply, and quality.
Only changed incentives change behavior.
You don’t have to be Milton Friedman to understand that. But you may need to be him to successfully explain it to people!
I grew up remembering the oil and gas shortages/lines of the 1970s and 80s. OPEC was a dirty word. A cartel that limited supply and raised prices. Strange people today can’t see the OPEC in so many fields around us: education, healthcare, etc.
I think their goal is for everyone to use less by making it all more expensive. Right? They are the planet's divine saviors, let us not forget! I'm on a diet and drive a high mileage car, so they can't ruin my parade. Insightful post, thanks.
i could spend hours on this topic. I grew up on a family hog farm in Central IL and have been and livestock/meat analyst for the last 17 years.
The Chicago Stockyards used to have a satellite yard in Atkinson, IL. The structure still exists, and the sign still says Chicago Stockyards. My dad's neighbor operated a hog order buying business there from the 1960's through the late 1980's. He told me once that it was Reagan that stomped on the hog industry. First, he bailed out IBP in the 80's, second he provided IBP with immigrant work visas that the rest of the industry did not have access to.
What is most concerning to me is not so much the consolidation that has taken place, but the foreign ownership. The largest hog producer is owned by the Chinese, the largest cattle processor is owned by the Brazilians. JBS has also bought out Cargill's hog and pork businesses. I believe that JBS is also deep into the poultry industry. The consolidation is bad, but foreign ownership of our food supply is worse.
With regard to meat prices, there is a very precise relationship between per capita disposable income (which has repeatedly set new records in the last 2 years thanks to direct gov't payments) and retail meat prices. The Biden administration is doing all they can to deflect. They need to blame someone else - anybody but themselves. But when you hand out money, prices must adjust.
Final topic in the meat markets that I do not currently have a handle on is California's Proposition 12, which went into effect on Jan 1. This law was voted in by the people about a decade ago. It specified space requirements for livestock production in CA. It put the CA laying hen business out of business. It also specified that starting Jan 1 2022, that all pork and eggs imported into California has to be raised according to Prop 12 compliance. In June, The National Pork Producers Association estimated that just 1% of US pork production was Prop 12 compliant. This means CA will run out of pork - prices will soar, while the rest of the country will be oversupplied and prices will fall. CA is the largest pork importing state.
A farm close to where I live is in the process of transitioning to Prop 12 compliance. This sow farm used to be a 5,500 head farm. After transitioning to Prop 12 compliance, it will be a 3,500 head farm, because of the additional space requirements per animal. This farm is reducing capacity by 36% to be able to sell pork into CA. What does that tell you about their expectations for price?