The U.S. Farm Bureau released its latest survey on the price of Thanksgiving dinner. This year will be the lowest price in five years.
A turkey dinner for 10 people will cost $49.12, according to the 32nd annual survey. That’s down $0.75 from last year’s average price of $49.87.
Adjusted for inflation, this year’s Thanksgiving dinner is just $20.54. That’s the lowest price since 2013. A big part of that decline comes from turkey. The average cost of a 16-pound turkey was $22.38, down 6% from last year.
You’ll see this reported on the television news and on the internet. But they aren’t telling you why. The reason for this is simple … oil prices.
Oil Prices and The Costs of Growing Grains
Changes in oil price directly affect the price of grains. In this study, wheat was the most sensitive to direct price changes. You can see what I mean in the chart below:
You see, oil prices have a direct impact on the costs of growing grains. From the diesel for the tractor to the fertilizers for the fields … oil prices directly affect the cost of growing grains.
According to the Penn State Agriculture Extension service, it takes around 35 pounds of grain to produce a 16-pound turkey. It takes over 100 pounds to produce a 36-pound turkey. There is a direct relationship between the cost of grain and the cost of the bird.
Lower grain costs mean lower turkey costs. However, the costs don’t set the price of our turkey. It’s supply and demand.
The U.S. Department of Agriculture forecasts the volume of turkey meat at 6.01 billion pounds this year. That’s up from 5.98 billion pounds last year and 5.63 billion pounds in 2015. That’s because, as costs fall, it becomes more economic for farmers to produce more turkeys … or corn … or wheat.
I’ve talked about corn a lot lately. The price of the staple crop fell from over $8 per bushel in 2012 to just $3.46 today. Like turkeys, that’s because the harvested crop soared from 10.8 billion bushels in 2012 to 15.1 billion bushels in 2016.
We saw that happen across the whole agricultural space. All the major crop yields soared — canola, wheat, rice, cotton and soybeans all had major yields in 2016.
As you enjoy your turkey dinner this year, remember to thank an oilman!
Happy Thanksgiving,
Matt Badiali
Editor, Real Wealth Strategist
