Harrington's Sort & Cull

COLA Oblivious To Beef Lovers

John Harrington
By  John Harrington , DTN Livestock Analyst

For only the third time in the last 40 years, recipients of Social Security will receive no cost of living increase in 2016. There's just hasn't been enough inflation afoot this year to justify such an adjustment, at least not according to the strangely smoking calculators used by certain bureaucrats.

The consumer price index (CPI), like beauty itself, is in the eye of the beholder.

Actually, that's probably closer to the truth when it comes to the "cost of living". The CPI is just the sterile metric the government uses to measure a kind of legal faction (i.e., the average cost of living for the typical American). It's no secret that when laws and regulations start cutting along the lines of the average and typical, more than a few will leave the room in search of bandages.

For example, pork-loving truck drivers who enjoy great health may have absolutely no qualms with the suggestion that inflation is under control and the cost of living remains comfortably with the budget. But don't expect such raving reviews from homebound fans of hamburgers and steak who sort throw a tall pile of drug and doctor bills each month.

This decision to hold the line on Senior spending strikes me as having negative implications for meat prices next year, especially in regard to beef. Just consider the most recent meat price spread data released by the USDA this week.

The average retail price of pork last month was $3.919, 7% below the early autumn of 2014. Furthermore, retail pork for the first nine months of 2015 averaged $3.833, 4.2% cheaper than Jan-Sep 2014. Not only do these numbers support the no-inflation scenario, the likelihood of greater pork tonnage in 2016 thanks to the unfolding of herd expansion could theoretically help consumer leverage through still lower prices on bacon, chops, and sausage.

On the other hand, the average retail price of choice beef in September was $6.23, virtually even with last year and stubbornly 13% higher than the 2012-2014 average). Choice beef at the meat counter for the first nine months of 2015 averaged $6.339, 8.1% more expensive than Jan-Sep 2014. And unlike the expanding horizon of commercial pork production, I don't think the beef offering in 2016 will grow enough to lend shoppers significantly more bargaining power.

Older Americans may not burn the same number of calories as their younger counterparts, but I would argue that in many ways (e.g., following more traditional diets) they represent more reliable meat consumers. So if the real cost of living next year proves to be greater than economists at the Social Security Administration now assume, cattlemen may hate where grandpa and grandma feel obligated to cut back.

(CZ)

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