Spending

Grocery CEO explains spike in egg prices and predicts 'higher prices at Memorial Day' for meat

A worker wearing a protective mask fulfills an online order at a Stew Leonard's supermarket in Paramus, New Jersey, on Tuesday, May 12, 2020. Stew Leonard Jr. said that the meatpacking plant the company uses is operating at about 70% capacity, and he expects it to rebound to full capacity in about a month, CT Post reported.
Angus Mordant | Bloomberg | Getty Images

In early April, the price of eggs nearly tripled. That has some shoppers worried about price hikes for meat, too, which is already harder to find.

Covid-19 outbreaks at meat processing plants have upended food supply chains across the country, as plants have had to shut down and workers have fallen ill. The human tragedy is indisputably the worst part of this: A survey from the Centers from the Disease Control and Prevention found that 3% of workers have tested positive for Covid-19, and 20 of them have died. And the shutdowns caused by these outbreaks have wreaked havoc with America's meat supply.

While this is already translating to empty shelves and purchase limits in the meat section, what happened with egg prices offers some hope. Prices for conventional white eggs skyrocketed in late March and early April amid strained supply, but they have since stabilized near prepandemic levels.

It's too early to say how or when exactly meat availability and price will stabilize, too. Still, understanding aspects of both shortages that could be instructive for shoppers as they figure out what to expect for the cost of meat, says Stew Leonard Jr., CEO of the grocery chain Stew Leonard's.

Once supply and demand stabilize, prices should too

Since egg prices were relatively low for most of 2019, many egg farmers anticipated the same for 2020 and planned accordingly, says Leonard. His supplier in Pennsylvania told him that they didn't raise that many chickens for this year.

Once demand shot up as shelter-in-place orders went into effect, the shortage of chickens upset the market. "All of a sudden, Covid-19 hits and the price [of a dozen eggs] went from $1.39 up to $3.99. Huge increase because everybody was home, everybody was baking, the kids are off from school," says Leonard.

USDA data bears this out: From March 2 to March 23, America's supply of large eggs decreased by a whopping 40%. By April 3, right around when demand peaked, the average cost of a dozen conventional white eggs had tripled to $3, up from a low of $1.03.

Since early April, demand for eggs has stabilized and supply has mostly, though not completely, recovered. The latest USDA national average is back at $1.03/dozen, and Leonard's prices have dropped to $2.29/dozen.

The capacity of the processing plants has taken a hit, and that's what's disrupted supply, not a lack of cows and pigs. Even so, some of the effects are similar. Two weeks ago, America's pork plants were operating at about 60% of their normal capacity, according to Steve Meyer, an economist with Iowa-based firm Kerns & Associates, which works with the National Pork Producers Council.

Demand for meat will rise: 'People are going to start grilling'

Demand for eggs usually tends to peak around Easter. This year, that happened to coincide with a nationwide shortage and elevated demand because of the pandemic.

For many popular cuts of meat, peak demand is coming up as the late spring and summer holidays approach.

"Particularly in the last week or two, the cuts that have been most affected have actually been on the steak side," says Bridget Wasser, executive director for meat science & supply chain outreach at the National Cattlemen's Beef Association. "We're moving into warmer weather. People are going to start grilling, so they're starting to look for some of those steak cuts that are most popular."

People are going to start grilling, so they're starting to look for some of those steak cuts that are most popular.
Bridget Wasser
executive director for meat science & supply chain outreach, National Cattlemen's Beef Association

Prime tri-tip sold in wholesale markets at an average price of $6.13/pound for the week ending May 8. That's nearly two dollars more than where it was just the week before and 72% more than it was at the same time last year.

Ground beef, which Wasser says is the most popular cut sold at retail, is on a similarly stark upward trajectory, pricewise. Eighty-one percent lean ground beef is trading at $4.77/pound, over a dollar more than the week before and nearly $3 more than last year. That could have huge ramifications for anyone who enjoys burgers at cookouts.

Leonard is already planning to sell meat at higher prices for Memorial Day. He's expecting to sell filet mignon for $8.99/pound, up a dollar from last year, and ground beef for $5.99/pound, up $2. His rancher in Montana has 35,000 head of cattle but can only have about 70% of his usual capacity processed right now. However, he's been told that number should creep back up in the next few weeks.

"I think people can expect higher prices at Memorial Day, and then the prices will come down again for Fourth of July," says Leonard.

'Retailers don't like to change retail meat prices unless they have to'

While wholesale meat prices have shot up, retail prices have remained steadier. Meyer attributes this to the idea that retail prices serve as a kind of economic "shock absorber."

"Retailers don't like to change retail meat prices unless they have to," says Meyer. "When their cost goes up, they'll try to toe the line on prices as long as they can, and then they'll finally mark them up. And when their cost goes down, they tend to try to hold a high price as long as they can until the store down the street forces them to drop it."

Stretches when the market is favorable to retailers — when wholesale costs are down and margins are up — can subsidize times when the market is bumpier, like right now. That's one reason why instead of seeing increased prices at some supermarkets, you may have noticed that there was a limit on how much meat you could buy or that certain cuts were simply unavailable.

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For a grocer like Leonard, striking a balance between maintaining profit margins and customer goodwill is a very real concern.

While Stew Leonard's was selling eggs at retail for a lot more than usual last month, a similar spike in wholesale prices made any other strategy unfeasible. Retailers can absorb shocks but only to a certain degree. That can cause margins to shrink in the short term, even when prices go up.

"Why make 50 cents on the same thing you were making a quarter on? Why do you deserve an extra quarter?," says Leonard. "What you end up doing is you don't go to 25%, you might go down to 20%, 15%, maybe even 10%."

Prices could keep changing until the pandemic ends

Pork plants have started to recover some processing capacity: According to Meyer, they're operating little bit above 70% of where they normally would be. The question is when, if ever, they'll get back up to 100%.

Mark Lauritsen, head of the food processing, packing and manufacturing division of the United Food & Commercial Workers, previously told CNBC that he expects capacity to remain reduced throughout the pandemic. Regardless of whether CDC social distancing regulations reduce the number of workers, or if outbreaks continue to take plants offline, capacity will stay down.

Likewise, egg supply is about 90% of what it was at the beginning of March. And while egg prices are much cheaper than they were a few weeks ago, they're still more expensive than they were at this time last year. That's the price point at which they seem to have stabilized.

Reopening restaurants could also awaken demand for popular steak cuts, according to Wasser, and that would further strain the country's limited supply.

"It's a concern, just as it is a concern throughout the economy, when we start going back to work, what happens," says Meyer. "I live in Oklahoma, and we're going to find out because we're [opening] things back up last week."

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