As the 2021 winter holidays approach in the U.S., we are reminded of gatherings around the dining room table. Menu plans often feature a large, roasted turkey with all the trimmings, savory side dishes, and home-baked pies. During the last couple of years, we all may have been especially thankful for an affordable turkey – maybe even free. Well, those days are definitely behind us. The cost of a whole bird turkey in 2021 will be significantly higher than in prior years.
The above graph illustrates the relative producer price of whole bird turkeys over the past few years. The turkey price in 2021 is significantly higher compared to prior years. Late-September turkey prices this year are running nearly 25% more than t in 2020, and nearly 50% higher than a prior five-year average1. In other words, a whole turkey for this holiday season is going to cost you nearly double what it did just a couple of years ago.
Yet it hasn’t always been like this. As the graph below shows, turkey prices were fairly high in 2015, and decent for turkey producers in 2014, but the rapid price increase in 2021 from the lows of 2019 is remarkable.
Turkey production tanks
Why, you may ask? Basic economic tenets provide a good explanation. Reduced production creates scarcity, and if demand is stable, prices will generally rise. Also, if demand increases when product is scarce, much higher prices are almost a given. So, are turkeys more scarce in 2021, and if so, why?
As shown in the U.S. Department of Agriculture (USDA) graph above, U.S. turkey production has been steadily declining over the last several years. Expected 2021 production volume will be the lowest since 2015, a time when a Midwest bird flu epidemic wiped out a lot of the turkey market for several producers. Remember those high turkey prices in 2015? That was because of that year’s bird flu.
The steady decline in production in the last five years resulted from several years of challenging economic conditions. Some U.S. whole-bird turkey production shut down in 2019 and 2020,2 a business economic necessity. As a result of low-price turkeys or free turkeys in prior years, turkey processing companies made little profit, so eventually some turkey processing plants closed. And, the impact of those closures means that fewer turkeys have been produced for the 2021 market.
You can’t flip a switch to produce more birds
The other interesting thing in the above graph is the rapid increase in turkey production in 2016, after turkey production was clobbered by the 2015 bird flu epidemic. Unlike other four-legged livestock, the growth period for poultry is generally much shorter. Turkeys can reach a target size and weight for smaller birds in as little as four-to-five months; whereas, a larger target size bird may take as many as nine months to reach maturity. So, within the turkey industry, production schedules can be much more responsive to market changes from year-to-year. Even with a shorter growth cycle, producer still have to do some advance planning as they can’t simply flip a switch to produce more birds.
Another illustrative USDA graph of whole bird turkey production and prices is shown below. Average turkey prices declined as a result of the higher volume of production, and when production was curtailed, prices rose. This is bit overly simplistic, but the underlying economic fundamentals of this key relationship are true.
Turkey and chill
So there are fewer turkeys available in 2021. Then, why has demand increased compared to prior years? Well, many families in 2020, trying to cope with COVID-19 restrictions on restaurant dining, turned to more home-cooked meals and baking. A popular phrase at the time was, “It’s Thanksgiving every week!” Shoppers were consuming turkey more frequently, versus just seasonally. This increased the demand for turkey at a time when production was being curtailed. For the most part, turkeys are produced year-round. But the processed birds that are not brought to the market fresh are put into cold storage. Throughout the year, total cold storage volume builds every month, until inventory is drawn down during the holiday season. This is shown in the graph below, keeping in mind that the consumer was buying more turkeys in 2020 and 2021, and as production was reduced, the volume of turkeys in cold storage was also much lower than in 2019.
There was a time as recently as a couple of years ago when there was an ample number of turkeys in cold storage, more than enough to meet consumers’ needs for holiday birds. But as that cold storage volume declined, grocery buyers of frozen turkeys have been met with a shortage of available birds, again, leading to higher prices.
At my house, we’ve trended away from cooking whole bird turkeys for the holidays, opting instead for a turkey breast. (No more deep-fat fryers tipping over and potentially setting the deck on fire.) However, my son isn’t all that happy about the change since he’s a big drumstick fan (just as was King Henry VIII.) Nonetheless, my spouse, the true monarch in our household, finds the turkey breast to be much more convenient and food-efficient.
But this raises the question as to whether a turkey breast price is always more per pound than a whole bird price. Are breast prices also soaring like whole bird prices? According to the USDA, the answer is yes. The graph below illustrates the USDA-reported trends in recent turkey breast prices, and we’re seeing a similar rise in turkey breast prices in 2021. You may notice that at 2021’s start, turkey breast prices were much lower compared with years 2019 and early 2020. What happened? COVID-19 happened. The foodservice sales channel –restaurants and deli sandwich shops – was essentially closed for much of 2020 after the month of March. This meant that the “normal” demand for sliced turkey and turkey breast was displaced, resulting in an oversupply of turkey breast, and voilà, we saw low prices. With the development of an effective COVID-19 vaccine, more and more food service operations have completely re-opened, restoring the demand for turkey breast. However, overall turkey production is now lower, right at the time demand is restored. Lower supply plus higher demand equals higher prices.
And similar to the whole bird turkey supply constraint, the frozen turkey breast in cold storage, as shown in the graph below, is significantly lower than in prior years. This means that despite the lower turkey breast prices in early 2021, the rising breast prices won’t be squashed with a release of product out of cold storage.
In summary, there’s just no way around it, turkey prices are going to be much higher in 2021 than in recent years. But there’s hope for 2022. The high prices will undoubtedly act as a catalyst for turkey growers to once again increase production. As the old adage in agriculture goes, “Nothing cures high prices like high prices.”
1 USDA-AMS
2 meatingplace.com – “Cargill to end fresh, frozen whole turkey production in Texas,” 9/16/2019
Opinions and information included in this article are general and not intended to provide specific advice or recommendations for any individual or entity. Contact your banker, attorney, accountant, and/or tax advisor with regard to your individual situation. The author’s opinions do not necessarily reflect those of Wells Fargo Commercial Banking or any other Wells Fargo business.
