Sort & Cull

What's Not to Like?

John Harrington
By  John Harrington , DTN Livestock Analyst

The great French philosopher and playwright Voltaire once put it in a nutshell: "Common sense is not so common." But sometimes I think the great cynic may have been too optimistic.

Common-sense search parties in the market have been known to make the whereabouts of Big Foot, Amelia Earhart and Malaysia Airlines Flight 370 seem like child's play. In this regard, permit me to suggest the latest in an endless line of no-brainers that often refuse to add-up on the market's stubborn blackboard.

Specifically, would common sense (i.e., the obvious combination of verifiable data and the tried-and-true drift of historical logic) not recommend the assumption of greater red meat spending by U.S. consumers throughout 2016?

In the no-nonsense words of Sergeant Joe Friday, "just the facts, ma'am."

First, consider the revenue side of the common-sense ledger. Both employment and wages (the latter at a much slower pace) continue to grow, basic forces that work to expand family budgets and consumer spending potential. The unemployment rate in January fell to 4.9%, the lowest since February 2008 and 5.1 points below the worst of the "Great Recession" (October 2009).

Although hourly wages have been rather stagnate over the last five years, the most recent data is encouraging. The latest monthly jobs report showed a much-awaited pickup in wage growth is starting to manifest. Average hourly earnings in January rose 0.5% from a month earlier to $25.39. The year-over-year increase of 2.5% followed a 2.7% jump in the 12 months ended in December, which was the biggest advance since mid-2009.

Switching to expense vouchers, I think the ring of common sense sounds even clearer. Fundamentally, the retail price of cuts of beef and pork are simply much more affordable than they were a year ago. Consider these hard facts fresh from Washington's number-crunching oven:

The average retail price of choice beef in January was $5.975, nearly $0.36 less than January 2015 and $0.44 below the record high set in May 2015. More specifically, lean ground beef last month averaged $5.70, 6% below the prior year and 8% less than the top of February 2015. All uncooked roasts in January averaged $5.42 in the meat case, 7% cheaper than the previous year.

The average retail price of pork in January was $3.793, nearly $0.20 less than January 2015 and $0.42 below the record high set in September 2014. More specifically, all pork chops last month averaged $3.656, 8% below the prior year and 12% less than the top of November 2014. Bacon in January averaged $5.656 in the meat case, actually 1% higher than early 2015 but 7% cheaper than the sizzle summer of 2014 when the June average hit $6.106.

My last offering at the altar of common sense concerns the plunging price of gasoline, a major component of the average family budget. According to the AAA, the average price of gas in the U.S. is just under $1.70 per gallon, the lowest point since January 2009.

For the sake of comparison, the biggest savings drivers are enjoying right now compared to the same time last year are being seen in Illinois (83 cents), Indiana (77 cents), Kentucky (75 cents), Michigan (74 cents) and Minnesota (74 cents). The current national average is less than half the average national price for the entire years of 2011, 2012 and 2013.

While a wide range of assumptions make it tough to estimate the exact impact of lower fuel costs on average household expenditures, I think a conservative range of year-over-year savings would be between $2,000 and $2,500. Regardless how you pump it, that's (potentially) a whole lot of burgers, steaks, chops and roasts.

More money to spend and cheaper good things to buy. What's not to like.

Cattle and hog futures are trying to trend higher as we move toward the tail end of the first quarter. Yet I think we'd all agree the bullish pace is cautious at best. I guess one man's common sense is just another man's Rubik's Cube.

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