The American Farm Bureau Federation’s Market Intel series has examined the impact that COVID-19 has had on livestock, beef and pork markets through the course of the pandemic. Food production was significantly disrupted, especially at livestock-processing facilities. Labor shortages and worker-protection measures slowed throughput at plants across the country and even caused some facilities to temporarily close. As a result there was a sharp increase in the wholesale value of beef and pork that coincided with a rapid decline in the value of live animals. That created a record “live-to-cutout spread,” which is the difference between the price that’s paid for the live animal and the wholesale price of the processed animal product.

During the disruption the one area that’s received less attention is the spread between the price of beef and pork leaving the processing sector, and the price that consumers pay at the grocery store. Part of the reason for that is the time lag between when prices are paid and when data becomes available for analysis. But we now have several months’ worth of data to examine and piece together a picture of the impact of COVID-19 on meat price spreads.

Consider price data

The U.S. Department of Agriculture’s Economic Research Service compiles monthly average values – and the differences among those values at the farm, wholesale and retail stages of the production and marketing chain for selected cuts of beef and pork. Retail prices are from the Bureau of Labor Statistics’ Consumer Price Index. Wholesale and farm prices are from USDA’s Agricultural Marketing Service. Conversion factors developed by ERS are used to convert retail weight to a carcass-weight equivalent. The Economic Research Service calculates its price spreads on a per-pound-of-retail-product basis.

  • It takes 2.40 pounds of the standard steer to produce a pound of retail beef, and 1.14 pounds of wholesale beef to produce a pound of retail beef.
  • For hogs the conversion factors are 1.869 pounds of hog per pound of retail cuts and 1.04 pounds of wholesale cuts per pound of retail cuts.

The gross farm values in the price-spread tables are the farm price of live animals multiplied by the farm-to-retail conversion factor. The wholesale values are the average price of the animal’s wholesale meat cuts times the wholesale-retail conversion factor. Inflated price spreads can often lead to frustration at various sectors of the supply chain, from disgruntled producers experiencing declining shares to angry consumers facing increased prices at the meat case. Increasing price spreads can inflate retail prices and deflate farm prices.

Beef data shows spikes

Figure 1 shows the retail, wholesale and farm values of beef on a retail weight equivalent. The impact of COVID-19 is evident in the spike of retail and wholesale values during late-spring 2020. It’s important to keep in mind that those are monthly data, so the weekly variations we have addressed in other articles are more difficult to distinguish.

The shortage in processing capacity and the backlog of animals in the processing pipeline didn’t increase the price of cattle. Instead prices at the wholesale level increased by more than 100 percent, while retail prices increased 25 percent. Farm-gate prices, on the other hand, decreased 5 percent. Keep in mind those values have all been converted to a retail-equivalent value so they may not reflect the same magnitude seen in other reports.

Figure 2 examines the spreads between the farm, wholesale and retail values shown in Figure 1. A price spread is essentially the difference between the cost of an item at two different stages of the marketing channel. It can also be viewed as the costs and profits of the marketing system that moves the product from the farm to the processor to the consumer. Figure 2 shows three spreads.

  • farm-to-wholesale spread as denoted by red bars
  • wholesale-to-retail spread as denoted by the blue bars
  • farm-to-retail spread, the combination of the red and blue bars

For beef, COVID-19 resulted in the greatest levels for all three price spreads since the data was first collected in 1970. The farm-to-retail price spread peaked in June at $5.21 per pound retail weight equivalent. Also peaking in June was the wholesale-to-retail spread, at $3.86 per pound retail weight equivalent. But the farm-to-wholesale spread peaked in May at $3.90 per pound retail weight equivalent.

Pork data shows smaller spikes

The pork complex experienced a similar spike to beef, albeit at a reduced magnitude. Figure 3 shows three spreads.

  • farm-to-wholesale spread as denoted by red bars
  • wholesale-to-retail spread as denoted by blue bars
  • farm-to-retail spread, the combination of the red and blue bars

COVID-19 resulted in record levels for all three price spreads for pork since the data was first collected 50 years ago. The pork farm-to-retail price spread peaked in June at $3.65 per pound retail weight equivalent. Also peaking in June was the wholesale-to-retail spread, at $2.84 per pound retail weight equivalent. But the farm-to-wholesale spread peaked in May at $1.19 per pound retail weight equivalent.

Farmer share decreases through time

The data also gives us the ability to calculate the producer share of the overall retail dollar. Figure 4 shows us the producer share of the retail dollar during the past 20 years for both beef and pork. Since 2000 the producer share of the beef retail dollar has averaged 47 percent while the producer share for pork has averaged 27 percent. However the value of both animal proteins has been decreasing the past several years – dragging the average producer share to 42 percent during the past three years for beef and 21 percent during the past three years for pork. Of course that decline started before COVID-19 but the pandemic has exacerbated the issue, resulting in record worst numbers for producer shares of the retail dollars. At 31 percent, beef producers experienced a record monthly worst in June. Pork didn’t experience an absolute record worst, but at 14 percent it was near the record of 12.3 percent experienced in December of 1998. It’s certainly the worst in the past 20 years.

Looking at the producer share of the retail dollar is a helpful exercise in examining trends and even the impacts of recent events. But nuance and context are warranted when citing this variable’s impact. For instance this is the producer share of the retail dollar. It doesn’t include consumer expenditures in the “food away from home” channel – such as food purchased in restaurants. Additionally these numbers and any calculations derived from this Economic Research Service dataset are simple average retail prices; they aren’t volume-adjusted retail prices, a more telling data point. These numbers also don’t include the impact of features and promotions so they miss the actual retail price paid by consumers. That’s less than the publicly available prices used in the producer-share calculations.

Conclusion

COVID-19 has dramatically impacted producer profitability, packing-plant operations and the prices consumers are paying at the retail level. Part of that impact can be found in the price spreads for beef and pork at each stage of production. COVID-19 has resulted in record price spreads for pork and beef at all three farm-to-consumer processing points – the farm-to-wholesale spread, the wholesale-to-retail spread and the farm-to-retail spread. It has also greatly impacted the producer share of the final retail dollar, resulting in a record-worst share for beef producers and an almost-record-worst for pork producers. Some parts of the supply chain have largely recovered from the disruptions experienced earlier in 2020, but the overall impacts continue to reverberate throughout various stages of production.

Michael Nepveux is an economist with the American Farm Bureau Federation’s Market Intel. Visit www.fb.org/market-intel for more information.