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Grocers Will Eat Most of Increased Turkey Costs This Thanksgiving

Thanksgiving is fast approaching, and that means turkey. But after a rough year for poultry farmers, that traditional dinner table centerpiece will cost more.

After the worst outbreak of bird flu in U.S. history wiped out 48 million turkeys and chickens this summer, farmers remain in recovery mode. While egg-laying hens were hit the hardest, nearly 8 million turkeys were also killed, many of them in Minnesota, the top turkey-producing state in the country.

Turkey production in the current quarter is expected to be down 8 percent, according to the U.S. Department of Agriculture, to the lowest level in more than a decade. Output is seen recovering in the first half of 2016.

That doesn't mean there are turkey shortages, however. The National Turkey Federation estimates about 46 million turkeys are consumed by Americans each Thanksgiving, and this year, farmers are still on track to turn out 228 million birds.

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The supply crunch has, however, translated into higher prices. A recent report by Purdue University said that the wholesale price for "Eastern market whole turkey," a standard USDA pricing benchmark, is expected to be $1.31 to $1.37, or about 20 percent higher than a year ago.

"That's a very big food cost increase," says Corinne Alexander, professor of agricultural economics at Purdue University and the author of the report. "(But) that's the wholesale cost, and that may or may not be what consumers face at the grocery store."

Prices at the grocery store tend to be "stickier," meaning retailers restrain from pushing those increased food costs out to consumers. That's especially true for turkey at this time of the year, Alexander and others note, since retailers roll out offers to lure shoppers in the hope that they'll spend on other products while they're in the store.

Such is the case with Norwalk, Connecticut-based Stew Leonard's. Between its four stores, the grocery chain expects to sell 1 million pounds of turkey in the week leading up to Thanksgiving.

The company says it has seen a tightening in the turkey market, with wholesale prices jumping 10 percent, despite the fact that it sources its turkey from Jaindl Farms in Pennsylvania, a state that escaped the bird flu outbreak.

Stew Leonard's raised the price of fresh turkey by 20 cents to $1.69 per pound, but held steady at $2.99 per pound — same as last year — on its most expensive and most popular turkey product: antibiotic-free, whole turkey.

"We didn't want to go over that $2.99 number. We want everybody to come in and buy mashed potatoes, buy gravy," says Stew Leonard Jr., the chief executive of the chain. "Obviously it's more profitable than turkey, so we want people to come in and buy their turkey, and then buy the potatoes, gravy, Brussels sprouts. You make more money on those than you do the turkey."

Stew Leonard's isn't alone. The same scenario plays out across the United States. According to the National Grocers Association, which represents the independently owned operators within the U.S. supermarket industry: "In a highly competitive industry, price is a way supermarkets differentiate themselves in the marketplace, and oftentimes supermarket operators take a cut in their profits to ensure low turkey prices."

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In other words, many retailers will eat those higher wholesale costs just to get the increased foot traffic that could result in more sales of Thanksgiving accompaniments — particularly prepared food — that tend to have higher margins.

Still, analysts expect higher turkey costs to be relatively short-lived for grocers, too. Midwestern farmers affected by bird flu last summer have been repopulating their facilities, and the virus has, so far, not made any much-feared reappearance. The USDA projects turkey supply will return to more normal levels by the spring.