Turkey Prices - Thanksgiving Edition

With Thanksgiving just around the corner, now is as good a time as any to take a look at turkey prices and see how the the price of the centerpiece of the holiday meal has changed over time.

Using monthly data from the Bureau of Labor Statistics (maintained by the LMIC) from January 1980 to October 2016, here is the trend in whole, frozen turkey prices.  In inflation adjusted terms, turkey prices fell by half from 1980 to 2008.  Then, along with other agricultural commodities, turkey prices rose and then fell again.  Still, prices today are about 40% lower than they were in the 1980s in inflation adjusted terms.  The nationwide price of turkey in October 2016 (the last reported by the  BLS) was $1.69/lb.      

An interesting feature of the data in the graph above is the apparent cyclical nature of turkey prices within a year.  This raises the question: are you paying more or less for turkey when Thanksgiving rolls around?  Looking at the monthly data since 1980, the answer might be a bit surprising: November tends to be the month with lowest prices for turkey. Prices of turkey in November tend to be  about 5% lower than the average annual price.  Moreover, October tends to be the month with the highest price for turkey (about 3-4% higher priced than the annual average price).  Thus, the largest price swing happens from October to November with prices typically falling about 8% just prior to Thanksgiving.  

This pattern of price fluctuation might be a bit surprising.  Isn't it the case that demand for turkey is highest in November? If so, shouldn't a demand increase drive up prices?  Yes, but producers also know when demand spikes occur and they can plan production and storage accordingly (this is a fairly highly integrated industry) so that there is ample supply during this time.  Additionally, research on this topic has suggested that retailers might use turkeys as so-called "loss leaders".  Knowing that many consumers will be shopping for turkeys, retailers will offer specials and discounts  on the item everyone is looking for to get them in the door so that they'll buy all the other things it takes to make a Thanksgiving meal.  

Finally, it's instructive to look at proteins more generally.  How pricey is turkey relative to the other big ticket meat items that families might put on their dinner plate?  If turkey got too expensive, you can substitute toward another tasty main course. (Growing up, my family was never a big fan of turkey, so we often opted for steaks or ham).   

Here are the relative price trends since January 2000 (again based on BLS prices).  As of last month, beef steaks are about 4.4 times more expensive (on a $/lb basis) than turkey, and beef roasts are about 3.1 times more expensive than turkey.  Another way to say this is that for the same fixed budget, one could buy four times as much turkey as they could beef steak (no minor issue if a dozen folks are headed to your house).  Pork chops and ham are both about 2.3 times the price of turkey.  That said, beef and pork are more affordable relative to turkey than they were last year at this time.  From October 2015 to October 2016, the prices of the beef and pork products investigated here have fallen 11.8 to 16.6% relative to the price of turkey.  Whole chickens are about the same price as turkeys, though slightly cheaper on per-pound basis.

Now that you know the prices, figure out how many pounds you need to feed the gathering, how much you can spend, and buy whatever it is that brings you and your family the greatest joy.  Happy Thanksgiving!  

Country of Origin Labeling and Cattle Prices

Last week, I traveled quite a bit - from Georgia to Montana and back to Oklahoma.  In all three locations, I heard a claim that I hadn't yet heard before.  Namely that the low cattle prices we are now observing is a result of the repeal of mandatory country of origin labeling (MCOOL) for meat around the first of this year (note: the repeal came about a result of a series of World Trade Organization rulings against the U.S. policy).

I have to admit to being skeptical of the claim.  Agricultural economists have been researching this issue for quite some time (e.g., I have a paper on the topic with John Anderson published more than a decade ago back in 2004).  By and large the conclusion from this body of research is that MCOOL has had detrimental effects on beef producers and consumers (e.g., see this recent report prepared for the USDA chief economist by Tonsor, Schroeder, and Parcell).  It is true that some consumer research (including my own) reveals consumer interest in the topic and willingness-to-pay premiums for U.S. beef over Canadian or Mexican beef in surveys and experiments; however, most consumers were unaware MCOOL was even in place, and research using actual market data hasn't been able to identify any shifts in retail demand as a result of the policy (a summary of this research is in the aforementioned report).

So, let's put my initial skepticism to the side and look at the data.  Here is a graph of fed steer prices (blue line) and number of fed steers marketed (red line) over the past several years (these are USDA data from the LMIC and represent the 5-market weekly weighted average including all grades).   

The solid black vertical line indicates the point where MCOOL stopped being enforced by the USDA (just prior to January 1, 2016).  Looking at cattle prices, one can see how the claim that the repeal of MCOOL caused a drop in cattle prices came about, as the repeal came right after the peak of fed steer prices, after which prices began to fall rather dramatically.  

But, is this just a coincidence?  Correlation is not always causation.  

The red line in the graph shows the number of steers marketed (I plotted the 6 week moving average to smooth out some of the "jumpiness" in the line).  There is a strong inverse correlation between the number of fed steers marketed and the price of fed steers.  When more cattle are brought to market, prices fall and vice versa.  The correlation coefficient is -0.78 over this time period (January 2, 2000 to early November 2016).  

What started happening at almost the exact same time MCOOL was repealed?  Producers started marketing more cattle.  Here's the thing: one can't create a fed steer overnight.  The production decisions that led to the increase in fed steers around January 1, 2016 would have had to have been made around two years before.  Were producers so prescient that they could anticipate the exact time of the repeal of MCOOL two years prior?  Or, rather, was this a "natural" part of the cattle cycle?  

As the above graph shows, producers started having many fewer cattle to sell beginning in '08 on into 2012 for a variety of reasons such as drought and high feed prices.  These lower cattle numbers led to higher prices, which in turn eventually incentivized producers to retain heifers and add more supply to reap the benefits of higher prices.  When did all those extra cattle start hitting the market?  It turns out (largely by chance) that it was the same time MCOOL was repealed.  

Let's go one step further.  Because the supply of fed cattle is relatively fixed in the short run (as production decisions have to be made many months prior), we can use the above data to get a very crude estimate of the demand for fed cattle.  Using just the data shown in the above graph, I find that 81% of the variation in (log) live steer prices is explained by changes in the (log) quantity of steers marketed.  Estimates suggest that a 1% increase in the (six month moving average of the) number of steers marketed is associated with a 0.5% decline in live steer prices.  

Since the 1st of the year there has been a roughly 120% increase in the number of steers marketed (from an average of around 14,600 head/week just prior to the first of the year to an average of around 32,500 head today), and our simple demand model would suggest that this would lead to a 120*0.5=60% decline in cattle prices.  Yet, cattle prices have "only" declined about 25% (from around $133/cwt at the first of the year to around $100/cwt now).  So what?  Well, if MCOOL was the cause of the reduction in cattle prices, we would have expected an even larger fall in cattle prices than our simple demand model predicted, but instead, we're actually seeing a smaller fall than expected.  

Now, let's address one possible criticism of the above discussion.  What if the rise in fed steers marketed in the graph above is because of cattle flowing into the US from Canada and Mexico once MCOOL was repealed?  Here is data on imports of cattle from Canada to the US (again from LMIC).

There was a fall and then a larger uptick in the number of cattle imported from Canada to the US right after MCOOL, but nothing out of the ordinary from the typical fluctuations in the three years prior.  For example, the "spike" in total imports (slaughter cows + fed cattle + feeder cattle) around May of 2016 is at least 5,000 head smaller than the five previous spikes that occurred when MCOOL was in place.   

Even if I take the roughly 5,000 extra imports of fed cattle that came in from Canada after MCOOL from January 1, 2016 to the middle of May, and assumed even than 75% were steers, this would represent only 13% of the number of steers in the 5-market dataset sold to packers.  At most, this would cause a 13*0.5 = 6.5% decline in U.S. fed cattle prices according to my simple demand model.  This is nowhere near the 25% decline actually observed since the 1st of the year.  Moreover, look at what happened to cattle imports during this summer.  They fell.  They fell at a time when U.S. cattle prices were falling.  So, it can't be that extra Canadian imports were the cause of falling U.S. prices during mid summer.

In summary: while it is conceptually possible that the repeal of MCOOL could adversely affect U.S. cattle prices, any actual effect appears to be quite small (if there is any effect at all).  The fact that cattle prices fell immediately after the repeal of MCOOL appears to be a coincidence.  The falling prices seem more to do with "normal" changes in supply resulting from the cattle cycle than anything to do with MCOOL.  

Chicken Price Manipulation?

This article in the New York Times by Stephanie Strom argues that something may be fishy with chicken prices.  

The main focus of the article is about a widely used price index of chicken prices (the so-called Georgia Dock index) that is used by some retailers to negotiate prices with poultry producers.  Apparently the Georgia Dock price of chicken is higher than a couple of other price indices of wholesale chicken prices (one of which the USDA just created), and the Georgia Dock price hasn't fallen by as much as another index in recent months.  The article insinuates that something nefarious could be going on to artificially inflate the Georgia Dock price (and by extension the retail prices you and I pay for chicken).  

I have no deep insights into the allegations in the article.  However, I do want to push back just a bit on the broader issue of chicken prices relative to beef and pork.  Here is Strom: 

“Beef prices at grocery stores are lower. So, too, are pork prices. But chicken? Steady as she goes.

A glut of corn and soybeans has led to lower prices for a variety of meats. But chicken in grocery stores has bucked the trend, leaving prices up for shoppers and buoying the fortunes of major chicken producers.”

I'm not so sure about that first line - that beef and pork have become cheaper relative to chicken. Using data from the USDA-ERS on retail meat prices, I constructed the following graph showing the retail price of chicken relative to the retail prices of beef and pork.  Unfortunately, the last data point is September (the USDA bases it's calculations on retail prices reported by Bureau of Labor Statistics, but BLS hasn't released October prices yet), so it is possible that there have been some changes in recent weeks that aren't reflected in the graph below (but, even still, one might wonder why it's just now in the past month or two that the poultry producers figured out how to rig the wholesale price).  

Two broad points: 

1) As of September, the ratio of chicken to pork prices is essentially flat (i.e., chicken isn't getting more expensive relative to pork).  While chicken is a tad more expensive than beef in August and September relative to July, overall the trend looks pretty flat to me.  

2) Chicken is really cheap!  It is about half the price of pork and about a third the price of beef.

Moreover, if we take a step back and take the long view, chicken has progressively gotten cheaper relative to beef.  (note: the graph below uses the price for a whole chicken rather than composite retail prices as in the prior graph because the whole chicken data series goes back further in time).  Whereas whole chickens sold about 40% the price of beef in the 1970's, today they're about 25% the price of beef.

So, are poultry producers manipulating a price index leading us to pay more than we otherwise would have paid for chicken?  I don't know.  But, as the above graph shows, there's a whole lot of other things poultry producers have done over time (better genetics, better feed, better housing, etc.) to make chicken ever more affordably priced compared to other proteins.  

New Research on the Berkeley Soda Tax

You may remember the discussion surrounding a research paper released back in August that used interviews and survey data to suggest that the tax on sodas that went into place in Berkeley caused a significant reduction in soda consumption.  

As several other locales are considering new soda taxes in the upcoming election season, this sort of research is valuable in trying to sort out the potential effects of the policies.  

Now there is new research by Scott Kaplan, Rebecca Taylor, and Sofia Villas-Boas at UC Berkely.  The authors utilize a dataset on retail sales of various drinks in dining locations at "a large university" - presumably Berkeley.  Importantly, the authors do not actually look at the effect of the implementation of the tax, but rather they look at what happened to soda sales because of the publicity and information surrounding the vote.  That is, they look at soda sales surrounding the time of the vote but before the tax actually went into place.

Here is a figure from the paper summarizing the main findings: 

The authors write:

“We find a 30% drop in soda sales relative to other product groups during the post-election
period. In a related and contemporaneous study using survey data, Falbe et al. (2016) find
an average 21% drop in SSB quantity sold. However, because the surveys were completed
only before the election and after the tax implementation, Falbe et al. (2016) are unable to
distinguish whether this effect was from the campaign and election or from the tax itself.
Our results show that soda sales fell on-campus after the soda tax election yet before prices
changed due to the tax. This suggests that comparing pre-campaign to post-implementation
consumption may confound a tax effect with an information effect. This has important
implications for external validity. If the Berkeley SSB tax is replicated elsewhere without
a proceeding campaign war and affirmative election outcome, its effects on consumption
may differ substantially. In other words, given the amount of money spent in the Berkeley
campaign on each side of the battle, it is important to understand how much behavioral
change was due to the election and how much was due to the tax itself.”

My take on the results is that these soda tax policies may well have sizable "signaling" or "information" effects aside from whatever pecuniary effects exist.  I have found similar results related to animal welfare regulations: that the publicity surrounding a vote has a significant impact on what people buy aside from whatever impacts the policy actually has on the price or foods offered.  In short: information dissemination campaigns may be as important or more important than taxes or bans on products.  In my assessment, information policies are often far more justifiable than are more coercive policies that restrict choice. 

It will be interesting to see as future research emerges whether and how the actual implementation of the tax changes soda consumption and how long lasting are these information effects.  

Social Isolation and the Food Police

Last week on the Econ Talk podcast, Russ Roberts had Chris Arnade on as a guest.  Arnade is a former Wall Street trader who became disillusioned with his work and began (first as a way to just relieve stress) going on long walks to poorer neighborhoods in New York where he would meet people and take pictures.  He's since expanded the enterprise and has visited disadvantaged areas all across the U.S.  

There was a bit near the end of the discussion that hit home for me and helps explain a bit of the motivation that led me to write the Food Police several years ago.  

From the transcript, here is Chris:

“They do see themselves as victims of policy decisions. They may not be actually informed about those policy decisions as people would like them to be. You know, I think what sticks out to me is the anger. The anger is kind of 3-pronged. One of it’s very much social. It’s a sense of feeling kind of diminished in terms of people caring about them, being made fun of: everything they do is laughed at. If they like NASCAR (National Association for Stock Car Auto Racing.), that’s made fun of. If they vape, then that’s considered wrong. They eat at McDonald’s, that’s cheap. So that’s kind of just—if they go to church, they are considered silly. So there’s a sense of just feeling like very much they are being mocked in terms of their lifestyle.”

After a bit more discussion, Russ Roberts the asks:

“I want to talk about the first one, because it interests me. I am constantly trying to remind economists that money isn’t everything. And that, although work is nice when it brings money, one of the things it also brings is meaning. And I think the problem of the lack of employment in the United States as we’ve recovered from this recession, especially among less educated Americans, is a huge problem, not because they are poor and unemployed—which is unpleasant, no doubt about it—but because their life is not as meaningful and worthwhile. So, I totally understand that. What I wonder about is this idea of respect. Certainly respect is hugely important to our sense of wellbeing. But when you say things like, ‘People don’t respect NASCAR,’ or church, they being—McDonald’s. And among my friends, that’s true. Among the people I hang out with generally, higher educated people, those are all the attitudes they hold. But are the people who are enjoying those things—McDonald’s, etc.—why do they—how do they perceive that they are not respected? I don’t hang out much with people on the Coast, say, who are telling them that—is this something they are perceiving on television? Is it something they are reading about?”

And Chris responds:

“I don’t want to get overly simplified but I guess I really do think there’s two Americas. And I think the America that’s doing well dominates the media, dominates the culture in terms of—you know, Sociologists always talk about there’s an in-culture and there’s an out-culture. And we signal [?] ways of being in the in-culture, in terms of the television shows, in terms of what’s on, movies, and what’s kind of made fun of. And I think there’s a fair amount of people who make fun of the culture of poverty, in terms of how people get by. If people go to church. If people, you know, go to NASCAR. Or those sort of things. I think it does filter across through the media. And I think some of it also is, comes from a place of being frustrated already and then taking any perceived slights, you know, magnifying them. So, you know, we may not be as—they may be more overly sensitive than they should be, but that comes from a place of also being just frustrated, economically—feeling very much like they are left behind.”

There are not doubt many good people in the so-called "food movement" who care about the downtrodden and are motivated by the belief that the food system they envision will help poorer people.  But, I think this exchange also reveals that we need to also respect and look at things through the eyes of the people we're trying to help.