Livestock > Outlook & Prices > Prices
Consumers respond to meat price differences
Ribeye steaks are the most popular steak sold in the summer, according to the Beef Checkoff. Pork chops are the most popular cut of pork, according to the Pork Checkoff. Boneless center cut pork chops are sometimes called an "America’s Cut." Two in five Americans say that the breast is their favorite cut of chicken, according to the National Chicken Council. Price comparisons among these cuts can offer notable insights into the meat market.
For the week of April 8 thru April 14, bone-in ribeye steaks averaged $9.91/lb. at major retail supermarkets according to the USDA National Retail Report - Beef published by the Agricultural Marketing Service, Livestock, Poultry, and Grain Market News division. This was 19.8% higher than the same week last year. Boneless ribeye steaks were $15.08/lb., up 33.8% from 2021.
The equivalent, USDA National Retail Report - Pork, showed bone-in center cut chops at $2.75/lb. and boneless center cut chops at $3.24/lb. These advertised prices were up 16.5% and down 19.4%, respectively, compared to a year ago.
USDA’s National Retail Report - Chicken showed boneless/skinless chicken breasts in value packs (generally greater than 3 lbs.) averaged $3.15/lb. this year compared to $2.12/lb. during the second week of April 2021. This 48.6% price surge was larger than the price hike of regular packs (less than 3 lbs.), which, at $4.14/lb., were up 37.1% year over year.
Nominal dollar prices matter. But relative values are the important consumer demand driver. Recall, demand for any good is a function of consumers’ tastes and preferences, income levels (or budget constraints), and prices of competing substitute and complementary products.
Two views on price relationships
The Consumer Price Index (CPI) provides a wide-angle view on changes in prices consumers pay over time. The US Bureau of Labor Statistics releases the CPI each month. In March 2022, the all items index (not adjusted seasonally) was 8.5% higher than in March 2021. Core CPI inflation, which excludes food and energy, which tend to be volatile, was up 6.5%.
The food index was up 8.8%. Meats and poultry indices outpaced price hikes for most other goods, surging 14.8% and 13.2%, respectively, compared to March 2021. But two other essential expenditures reached even deeper into consumers’ wallets, with transportation up 22.6% and energy rocketing 32.0% higher.
We can zoom in on meat and poultry by looking at relative values. We could use any cut as the base. Using boneless ribeye steak as a base is a straightforward, relative value comparison. Boneless ribeyes are more expensive than both boneless center cut pork chops and boneless/skinless chicken breasts in regular packs.
The challenge for beef is clear. Beef’s price is rising relative to beef’s two main competitors.
From 2016 through 2020 boneless ribeye steak prices averaged 3.7 times the prices of boneless/skinless chicken breasts in regular packs, up from 2.7 times in 2010. From 2016 through 2020 boneless ribeyes averaged 3.0 times the prices of boneless center cut pork chops, up from 2.3 in 2010.
From another angle, 2016 through 2020 prices of boneless/skinless chicken breasts in regular packs averaged 27.7% of boneless ribeye steak prices. Boneless center cut pork chop prices averaged 33.4% of boneless ribeye steak prices. Those percentages were some of the lowest pork and chicken prices relative to beef on record.
Boneless ribeye steak prices increased at a faster pace during 2021. Prices of boneless/skinless chicken breasts in regular packs averaged 23.2% of boneless ribeye steak prices. Boneless center cut pork chop prices averaged 29.9% of boneless ribeye steak prices.
So far in 2022, relative prices for boneless/skinless chicken breasts in regular packs are back to recent averages at 27.3% of boneless ribeye steak prices, closely matching the 2016 to 2020 period. Boneless center cut pork chops have remained more competitive with ribeyes. This year, these pork chop prices have averaged 28.8% of boneless ribeye steak prices, more similar to last year.
A major reason for the surge in both absolute prices and relative prices of boneless ribeye steaks, and beef in general, is strong consumer preferences. Beef’s price hikes are larger than the supply levels would typically dictate. People are creatures of habit. We buy many things because we like them. We change only when something major, such as a significant change in relative cost, causes us to reconsider our habitual purchases. But recalibrating our purchasing behavior in response to new price relationships takes time. Also, after a year of pandemic-related life style disruptions people were busting at the seams for some normalcy and needed to celebrate. Beef is a celebration food.
How much will consumers switch?
At some point, beef prices may get so high relative to pork and poultry that even the most ardent beef lovers will shop around. Economists have tools to predict the possible magnitude of switches.
Cross-price elasticity of demand measures how much the quantity demanded of one product changes in response to a change in the price of another product. For example, say the cross-price elasticity for beef with respect to the price of chicken is 0.05. That means a 1% decrease in the price of chicken decreases quantity demanded of beef by 0.05%. Expanding the decimal point, a 20% dip in chicken prices relative to beef prices should only shave quantity demanded of beef by 1%. That relationship assumes all else holds constant.
A positive cross-price elasticity means that products are substitutes, chicken for beef, for example. A negative cross-price elasticity means that products are complements. Vegetables, grains, potatoes, and sauces (think barbecue sauce or applesauce for pork) are complementary goods to meat. However, the quantity demanded of meat is generally not very responsive to changes in the prices of these complementary products. The logic, consumers purchase a desired meat (beef, pork, or chicken) first and then choose a side dish or ingredients to accompany their choice of meat.
Own-price elasticity of demand measures the responsiveness in the quantity demanded of a product to a change in its own price. For example, an own-price elasticity for beef of -0.86 means that a 1% increase in the price of beef decreases quantity demanded of beef by 0.86%, all else equal. A 20% price increase would shave quantity demanded 17.2%. A product is said to be price inelastic–not responsive to price–when the absolute value of its own-price elasticity is less than 1.0.
Some demand elasticities published in academic and government research are based on data that are 30-75 years old. More recent research suggests it now takes a larger price hike of beef over pork and poultry to entice consumers to switch. That is, beef is becoming more cross-price inelastic. Willingness of consumers to keep buying increasingly pricey beef suggests beef is becoming more price inelastic to changes in its own price. Both measures becoming more inelastic reflect rock solid consumer demand for beef.
Versatility complicates analysis
So far we have discussed substitution across meats. That is beef versus pork, beef versus chicken, or pork versus chicken. Other relative prices are also important. Meat and poultry products are highly versatile. So something is available for everyone on any budget. Consumers can interchange cuts in several recipes.
Even within cuts, relative prices matter. Consider bone-in versus boneless. Cuts with the bone left in are typically less expensive. Bone-in cuts often provide the most flavor, but trade-offs exist. The bone and higher fat content mean less edible meat and gauging serving sizes can be more difficult. Plus fat and bone may require more work to "get to the meat of the cut." Bone-in cuts can take a little longer to cook. Bone-in options may not be pre-packaged as readily, so consumers might need to pay a visit to a grocer’s meat counter, or a butcher, to find them.
Long-run averages suggest bone-in cut prices are about 85% of their boneless equivalents for ribeye steaks and center cut pork chops. Value pack prices of boneless/skinless chicken breasts are 80% that of regular packs. These relative prices can change dramatically from week to week. Consider in 2022 alone, bone-in prices for some weeks have been roughly at par with boneless prices. Other weeks they have been as low as 65%. The same goes for value packs of boneless/skinless chicken breasts versus regular packs.
Prudent consumers continually scrutinize weekly meat and poultry features to get the most meat for their food dollars.
Lee Schulz, extension livestock specialist, 515-294-3356, firstname.lastname@example.org