Rib eye steaks are the most popular steaks sold in the summer, according to the Beef Checkoff. Pork chops are the most popular cut of pork, according to the Pork Checkoff. Center-cut boneless pork chops are sometimes referred to as “America’s Cut”. According to the National Chicken Council, two out of five Americans say breast is their favorite piece of chicken. Price comparisons between these cuts can offer valuable insights into the meat market.
For the week of April 8 through April 14, bone-in rib eye steaks averaged $9.91 a pound at major retail supermarkets, according to the USDA National Retail Report-Beef published by the Livestock, Poultry and Grain Market News from the Agricultural Marketing Service. This was 19.8% more than the same week last year. Boneless rib eye steaks cost $15.08 a pound, up 33.8% from 2021.
The USDA National Retail Report-Pork equivalent showed bone-in center cut chops at $2.75 a pound and boneless center cut chops at $3.24 a pound. These advertised prices were respectively up 16.5% and down 19.4% from a year ago.
The USDA’s National Retail Report-Chicken showed that boneless, skinless chicken breasts in value packs (usually over 3 pounds) cost an average of $3.15 a pound this year, down from $2.12 per pound in the second week of April 2021. This 48.6% price surge was higher than the price increase for regular packs (less than 3 pounds), which at $4.14 per pound increased by 37.1% year-on-year.
Nominal dollar prices are important, but relative values are the primary driver of consumer demand. Recall that the demand for any good is a function of consumer tastes and preferences, income levels (or budget constraints), and the prices of competing substitutes and complements.
2 views on price relationships
The consumer price index gives an overview of the evolution of the prices that consumers pay over time. The US Bureau of Labor Statistics releases the CPI monthly. In March, the all-items index (not seasonally adjusted) was 8.5% higher than in March 2021. Core CPI inflation, which excludes food and energy, which tend to be volatile, rose 6.5%.
The food index increased by 8.8%. The meat and poultry indexes outpaced price increases for most other goods, rising 14.8% and 13.2% respectively from March 2021. But two other essential spending hit even deeper the consumer portfolio, with transportation up 22.6% and energy up 32.0%.
We can zoom in on meat and poultry by looking at the relative values. We could use any cup as a base. Using a boneless rib eye as a base is a simple relative value comparison. Boneless rib eye steaks are more expensive than boneless center-cut pork chops and boneless skinless chicken breasts in regular packages.
The challenge for beef is clear. The price of beef is up compared to the two main beef competitors. From 2016 to 2020, boneless rib eye prices averaged 3.7 times the price of boneless, skinless chicken breasts in regular packages, up from 2.7 times in 2010. From 2016 to 2020, rib eye – boneless tenderloin were on average three times the prices of the boneless center. cut pork chops, compared to 2.3 in 2010.
Put another way, from 2016 to 2020, prices for boneless skinless chicken breasts in regular packages averaged 27.7% of boneless rib eye prices. Prices for boneless center-cut pork chops averaged 33.4% of prices for boneless rib eye steaks. These percentages were among the lowest prices of pork and chicken relative to beef on record.
Boneless rib eye steak prices increased at a faster rate in 2021. Prices for boneless skinless chicken breasts in regular packages averaged 23.2% of boneless rib eye steak prices. Boneless center-cut pork chop prices averaged 29.9% of boneless rib eye steak prices.
So far in 2022, relative prices for boneless and skinless chicken breasts in regular packages have returned to recent averages at 27.3% of boneless ribeye steak prices, which closely matches the 2016 timeframe to 2020. Boneless center-cut pork chops remained more competitive with rib eye. This year, prices for these pork chops averaged 28.8% of boneless rib eye prices, more than last year.
One of the main reasons for the surge in absolute and relative prices for boneless rib eye steaks, and beef in general, is strong consumer preference. Beef price increases are larger than supply levels would generally dictate. People are creatures of habit. We buy a lot of things because we like them. We only change when a major event, such as a significant change in relative cost, causes us to reconsider our usual purchases. But recalibrating our buying behavior in response to new price relationships takes time. Also, after a year of pandemic-related lifestyle disruptions, people were on their last legs to regain some normalcy and needed to celebrate. Beef is a party food.
How much will consumers change?
At some point, beef prices can 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 change.
The 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, suppose the cross-price elasticity of beef to the price of chicken is 0.05. This means that a 1% drop in the price of chicken decreases the quantity demanded of beef by 0.05%. By expanding the decimal point, a 20% drop in chicken prices relative to beef prices should reduce the quantity of beef demanded by only 1%. This relationship assumes that everything else is constant.
A positive cross-price elasticity means that the products are substitutes—from chicken to beef, for example. A negative cross-price elasticity means that the products are complementary. Vegetables, grains, potatoes and sauces (think barbecue sauce or applesauce for pork) are complementary products to meat. However, the quantity of meat demanded is generally not very sensitive to changes in the prices of these complementary products. The logic: Consumers first purchase the desired meat (beef, pork, or chicken), then choose a side dish or ingredients to accompany their choice of meat.
The price elasticity of demand measures the sensitivity of the quantity demanded of a product to a change in its price. For example, a proper price elasticity for beef of −0.86 means that a 1% increase in the price of beef decreases the quantity demanded of beef by 0.86%, all other things being equal. A 20% price increase would reduce the quantity demanded by 17.2%. A product is said to be price inelastic – not price sensitive – 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 is 30 to 75 years old. More recent research suggests that it now takes a greater price increase for beef relative to pork and poultry to induce consumers to switch suppliers. That is, beef becomes more and more price inelastic. Consumers’ willingness to continue buying increasingly expensive beef suggests that beef is becoming increasingly inelastic to changes in its own price. The fact that both measures are becoming more inelastic reflects strong consumer demand for beef.
Versatility Complicates Analysis
So far we have discussed substitution between meats. That is, beef versus pork, beef versus chicken, or pork versus chicken. Other relative prices are also important. Meat and poultry products are very versatile. So, something is available for everyone on any budget. Consumers can swap cuts across multiple recipes.
Even within cups, relative prices matter. Consider bone-in or boneless. Cuts with the bone left in are generally less expensive. Bone-in cuts often offer the most flavor. But there are compromises. The higher bone and fat content means less edible meat, and judging portion sizes can be more difficult. Additionally, fat and bone may require more work to “get to the meat of the cut.” Bone-in cuts may take a little longer to cook. Bone-in options may not be prepackaged as easily, so consumers may need to visit a grocer’s or butcher’s meat counter to find them.
Long-term averages suggest that prices for bone-in cuts are about 85% of their boneless equivalents for rib eye steaks and center-cut pork chops. Value packs of boneless/skinless chicken breasts are priced 80% of regular packs. These relative prices can change significantly from week to week. Take 2022 so far: bone-in prices for the past few weeks have been roughly at the same level as bone-in prices. Other weeks they were as low as 65%. The same goes for budget packs of boneless, skinless chicken breasts compared to regular packs.
Prudent consumers continually review weekly meat and poultry features to get the most meat for their food budget.
Schulz is an agricultural extension economist at Iowa State University.