You'll see some prices stay exactly where they were last year and others will rise. Most of the poultry will stay about or exactly the same.
We're bumping pork and beef up for a number of reasons. Let's deal with pork first. Anyone watching the news knows what has happened to grain prices. Although Polyface does not buy generic commodity grain, the locally-sourced GMO-free (Genetically Modified Organism) grain we buy is still heavily influenced by global trade. We pay about a 30 percent premium over regular commodity prices. In the last 18 months, commodity corn has gone from $4 a bushel to more than $8 a bushel.
That is squeezing the pork industry and we're feeling the affects as well. Rather than raise the price on the tenderloins, however, we're concentrating on the sausage, which is hard to keep in stock. Letting the sausage absorb the necessary increase should help balance our inventory (sell more tenderloin relative to sausage) and pay the high grain costs. Volume purchasers will see an increase, but it is strictly a pass-through amount. In other words, Polyface is not increasing its margin; we're just trying to absorb these higher costs.
Beef has a bit of different pressure. High priced grain means grass is also far more valuable for the herbivore. Due to severe droughts in the U.S. and burgeoning demand worldwide, beef is in global short supply. The number of cows in the world are at their lowest since 1950. Currently, feedlots are losing about $150 on every animal they feed.
While this certainly makes grass-finished look great, our model does not exist in an island. Commodity beef prices are at record highs and appear ready to stay there in defiance of historic cycles. As we looked at our current prices, we realized that we could sell into the commodity trade for about the same amount as we're getting for our direct marketed, distributed, and packaged product.
Joel's dad always said: "I'd rather do nothing for nothing as something for nothing." The point being that if we're going to inventory, market, and distribute these thousands of pounds of beef, we need to get more for it than we would if we simply dumped the animals off at the sale barn. We buy some weanling calves from neighbors and keep them for a year in order to augment the calves from our own mamma cows.
Our neighbors certainly aren't willing to take a dime less than they could get at the sale barn. Like the pigs, even though Polyface stays aloof from much of the commodity game, we aren't an island. As a result, we're moving our beef prices to a place that gives us a return for our extra handling and effort. But again, we're looking at the inventory balance and targeting much of this increase on ground beef, which we can never seem to keep in. This allowed us to drop the price of New York Strip.
On most volume purchases, you'll see about $50 per quarter increase. Put in perspective, that's one dinner out for two or one movie theater event for a family. That seems like a fair trade to keep Polyface viable and our beef coming to your table.
We never like to raise prices without letting you know why, and we hope this transparent discussion creates an informed context for the coming year. Thank you for your continued support and understanding. We go through this exercise once a year; you won't see prices jump around from week to week. With sharp pencils and plenty of head scratching, this exercise extends for a year, so we make the best guess possible and trust we're close.