Families across America are in for a shock this summer…
One of the country’s great traditions – the backyard barbecue – will become pricier, due to rising beef and pork prices.
The latest data from the U.S. Bureau of Labor Statistics shows that the retail price of a pork chop hit an all-time high of $4.04 per pound in April. And average beef prices also climbed to a record in April – to $5.496 a pound.
Why is this happening? Simple…
Higher retail prices for meat are directly related to higher futures prices.
Lean hog futures prices on the Chicago Mercantile Exchange are up about 37% so far in 2014. Meanwhile, cattle futures are up about 20% year to date.
Will this trend of higher meat prices continue? The answer, unfortunately, is a resounding “yes.”
The Culprits: Disease and Drought
Higher futures prices for meat aren’t a fluke, or the result of price manipulation. They’re rooted in two crucial forces – disease and drought.
Disease: The rise in pork prices is largely due to the outbreak of porcine epidemic diarrhea. This affects young piglets, and the current death toll from the disease is over 10% of U.S. piglets so far, which translates to millions of animals.
Drought: The rise in beef prices comes directly from Mother Nature – drought.
Severe drought in places like Texas and California has left the U.S. cattle herd depleted. In fact, the herd is at levels not seen since 1951 – about 87 million.
In May, the number of cattle in U.S. feedlots fell another 1% to 10.6 million. That was the 21st consecutive month of year-on-year declines!
Future Outlook Still Bleak
The future outlook for both pork and beef prices is bleak.
The porcine epidemic diarrhea disease continues to spread. It’s already infected over 4,700 hog operations in the United States, and is growing by as much as 200 per week, according to Agriculture Secretary Tom Vilsack.
The bleak outlook on beef is evident in the futures price on feeder cattle, which are young steers and heifers given to feedlots to fatten for slaughter when they’re 12 to 22 months old.
The front-month August contract just hit an all-time high of $2.0052 per pound.
Most industry observers believe it will be at least two years before the country’s cattle population begins to rise again. In the meantime, higher beef prices are a given.
There are two ways to offset the cost of higher meat prices this summer.
If you’re familiar and comfortable with using the commodities market directly, you could purchase futures on hogs or cattle.
However, there’s an easier way to take advantage of rising meat prices.
It’s through an exchange-traded note called the Dow Jones-UBS Livestock SubIndex Total Return ETN (COW). This ETN tracks an index that includes two livestock commodities futures contracts – live cattle (60%) and lean hogs (40%).