Consumers willing to pay up for steaks, chops

Published on: Aug 23, 2013

AFTER a midsummer dip, consumers' willingness to pay for steak and pork chops rebounded in August, indicating that an improving economy is keeping shoppers in the market for center-of-the-plate proteins.

According to the latest "Food Demand Survey" from Oklahoma State University, shoppers' willingness to pay for steak increased 6.41% last month and increased 10.86% for pork chops (Table).

Conducted by Oklahoma State agricultural economist Jayson Lusk, the monthly survey looks at meat demand, food expenditures, consumer expectations and shopper sentiment on issues ranging from animal housing to food labeling.

The August survey found that end-of-summer and back-to-school shopping left buyers more willing to shell out more money for big-ticket meat items but less willing to pay for chicken breasts, hamburger and beans and rice.

"There are a variety of factors that affect the meat markets, and in any one month, it's hard to know exactly all the factors that are in play," Lusk said. "There are some seasonal influences, for sure — there are probably some grilling opportunities that people are taking advantage of — but there are also some macroeconomic effects at play."

Consumers surveyed in the August edition reported spending slightly less money on food consumed at home and slightly more money on food spent away from home, relative to the July survey. Looking ahead, consumers expect to spend fewer dollars on food in general, though only by a small percentage.

"In August, reported average food grocery expenditures were $91.87, down 1.05% from July, while an average of $46.35 was spent on food consumed away from home per week, up 0.63% from a month ago," Lusk said.

Shoppers surveyed said they generally expect meat prices to increase over the next month, and the overwhelming majority said they plan to trim their away-from-home food purchases. Nearly half of shoppers said they plan to buy more chicken next month, while more than a third said they do not plan to buy more beef or pork (Figure).

Lusk's monthly survey looked at consumer awareness of a grab bag of food-related issues, including food safety, animal welfare and animal disease issues.

Despite concerns about growth hormones and antibiotics, consumers still overwhelmingly named price and the ability to find affordable foods within their budget as their top food buying concerns (FoodLink, page 9).

Consumers' relatively rosy outlook regarding meat prices may have something to do with expectations. While beef, pork and poultry prices have hovered near record highs throughout 2013 — and could be poised to push higher as supplies remain tight — meat prices in general have not risen as much as economists had predicted.

"I think a lot of us were expecting to see some push up in meat prices," U.S. Department of Agriculture chief economist Joe Glauber said in a recent interview at CME Group's "Open Markets" blog. "We haven't seen much. Some of that takes time, but a lot of the livestock industry's been trying to get through a tough spring (and) into the fall."

Indeed, USDA's Economic Research Service (ERS) noted earlier this month that, in real terms, the percentage of income consumers spend on food is increasing; it was 9.8% in 2011, compared with 9.5% in 2008.

ERS reported that food price inflation has shown more volatility since 2006 based on a series of "interrelated factors" such as commodity prices and the Great Recession, resulting in annual changes to the all-food Consumer Price Index (CPI) of as little as 0.8% (in 2010) to as much as 5.5% (in 2008).

Food price inflation since 2006, in general, has outpaced overall inflation, with the all-food CPI gaining nearly 20% compared with the all-items CPI increase of 14%.

More specifically, the ERS report shows that many food products — chicken and eggs among them — are cheaper today in real terms than they were 30 years ago.

Eggs, however, were noted as one of the more volatilely priced items in the consumer food basket due, in part, to the ability of producers to shift supplies fairly rapidly from year to year in the face of changing market conditions.

Finally, consumer confidence over the summer has either improved slightly or held mostly steady.

In the July update of two widely watched indexes of consumer sentiment, findings differed slightly, with the Conference Board's index showing a slight retracement — 80.3 compared with June's 82.1 — while the Thompson Reuters-University of Michigan index gained a point, reading its highest confidence level since July 2007.

The latter survey found that younger households are seeing income gains due to an improving employment situation, while middle- and upper-income households reported stronger asset values and lower debt levels.

Each survey's expectations index, on the other hand, indicated a tone of lingering pessimism moving forward, with each declining between 1.2 and 6.4 percentage points from the previous month.

Perhaps the most important question, however, is how consumers' willingness to pay matches up with current meat prices.

Lusk's survey showed that consumers are willing to pay $6.60/lb. for steak, and ERS's monthly retail meat price update pegged Choice sirloin steaks at $6.68 in July — a pretty good match; similarly, consumers are willing to pay $3.85/lb. for pork chops, compared with a price of $3.973 reported in the July ERS data.

In a couple of categories, consumers may actually be willing to pay more than recent market prices suggest. For hamburger, Lusk's survey reported a willingness to pay at $4.11/lb., while the ERS price for July was at $3.459/lb. Chicken breast prices tallied $3.55 in July versus consumers' willingness to pay $4.90/lb.

As Lusk said, a variety of factors affect consumers' shopping habits, and one month of data is not the most compelling sample size. Watching the economists' surveys over time, however, may provide a long-term baseline from which to draw some interesting conclusions about how consumers behave in the face of changing market conditions.

Editor's Note: Lusk discusses the August "Food Demand Survey" in the "Feedstuffs in Focus" podcast at Feedstuffs.com.

 

Meat demand, willingness to pay

 

June

July

August

July to Aug.,

 

-$/lb.-

% change

Steak

6.87

6.20

6.60

6.41

Chicken breast

4.90

4.99

4.90

-1.72

Hamburger

4.03

4.14

4.11

-0.71

Pork chop

3.63

3.47

3.85

10.86

Deli ham

2.21

2.47

2.57

4.03

Chicken wing

2.27

2.13

2.39

12.37

Beans and rice

2.26

2.30

2.29

-0.45

Pasta

3.16

2.74

2.82

2.67

Source: Oklahoma State University.        

Consumers willing to pay up for steaks, chops

Volume:85 Issue:34

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