Gas prices and the grocery store

In the coming week, USDA will be sampling the US inventory for its March 1 Hogs and Pigs report that will be released in late March. Everyone will be looking at the kept for market category as it predicts future slaughter numbers for the next 5 months or so.

This winter, there are reports of quite of bit of production loss from PRRS outbreaks in sow units. There are stories circulating in the industry of production units weaning almost no pigs for up to 4 or more weeks, with large numbers of females lost to the disease also. However, so far these are only stories and not confirmed fact. The USDA numbers should give us an indication of how damaging PRRS was to our industry. If the pigs kept for market in the 60 lb or less category is only steady or even down slightly, this would suggest a PRRS impact on our summer market – fewer pigs than expected given the breeding herd inventory and the steady increases in reproductive performance.

After a pause of a few days, the grain market is continuing its upward price race. With March, May and July corn now priced above $7/bu, the cost of gain for is at all time highs. Depending on diet specifics, some systems now have feed cost of gains that are approaching $0.40/lb of gain with mid $0.30’s being a very common number for closeouts. On the sow side, every weaned pig now has $14-15 worth of sow feed invested in it.

The big question for all of us – will the consumer pay the bill? At producer meetings this past month I’ve been saying I think so, but now I’m not so sure. Prior to the unrest in the mid-east, while gas prices appeared ‘high’ they weren’t unreasonable and indications were that the American consumer was going to pay the going price without too much grumbling, or cut back in other areas. Given the recent unrest, and daily price moves in the petroleum market, I suspect the American consumer will be more hesitant with their dollar, as our economy is built on the relative easy availability of oil for transportation.

If the consumer gets squeezed by high oil prices (and high oil prices also result in high food prices), I think the consumer will make food purchasing decisions that reflect their concern with higher prices. They will keep gas in their SUV, pick-up, etc and keep taking kids to soccer practice, music lessons, etc. However, they will substitute cheaper cuts of meat and do other things to keep the grocery store bill ‘reasonable’. In 2008, the average weekly grocery store bill in the US was $98. This bill included not only food purchases, but all of the other items that people now purchase in grocery stores, including pharmacy expenses, flowers, alcoholic beverages, cleaning supplies, etc. That $100 per week barrier is very real and will be difficult to break thru given the increases in petroleum prices we are experiencing.

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