June 5, 2015
by Joel Crews
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Expansions are coming in the beef, pork and poultry sectors.
KANSAS CITY, Mo. – In delivering a roundup of the conditions in the protein sector to attendees of the 2015 Sosland Purchasing Seminar, Steve Meyer, Ph.D., vice president of pork analysis for Express Markets Inc., Fort Wayne, Ind., recapped details of a slowly rebuilding cattle herd, the devastation of this year’s avian influenza outbreak — especially on the egg market — and the strength of the pork industry. Factors influencing demand and consumption among US consumers were among other topics Meyer discussed.
During his June 1 presentation, Meyer categorized US consumer demand as “terrific- for meat and poultry it’s been a great demand run the last few years.” Domestic demand is strong, however export demand has been difficult for a variety of reasons, including the strong US dollar, the avian influenza outbreak and residual effects of the West Coast port backup earlier this year.
While meat consumption over the past decade has declined, from per-capita rates of approximately 220 lbs. in 2007 to just over 200 lbs. this past year, output was cut back only because of rising production costs, due to market conditions that included widespread drought.
“What needs to be remembered is that per-capita consumption is determined by production,” Meyer said. “We eat what we produce.”
He predicts production and therefore, consumption in the next two years to surge.
“We’re going to see an expansion in chicken; and expansion in pork and in turkey. Eventually we’ll get an expansion in beef, but that takes longer,” Meyer said.
A factor that usurps production when it comes to per-capita consumption is price. Beef has suffered as prices per lb. have maintained at record-high levels over the past 12-18 months. Pork prices, too, have risen over the nine months, but have recently receded.
“Last month was the first time so far this year that they (pork prices) have been lower than one year ago even though we’ve had large production runs this spring, Meyer said. Chicken prices have benefitted from the higher prices of the other proteins, but remain close to record highs that were last seen in 2013.
In the meat and poultry segment (excluding turkey) per capita expenditures in the US is up thanks in part to the fact that retail beef price is up YTD by 16 percent, pork is up 14 percent and chicken 7.6 percent.
The beef herd is rebuilding, which is limiting supplies currently and resulting in declining heifer prices and slaughter numbers. Fewer corn acres and more soybean acres are currently being produced, but the X-factor is the weather, but Meyer is predicting corn prices to be between $3 to $3.25 per bushel and soybean meal to range in the range of $200 to $300 per ton in the coming year, which is considerably lower than in previous years and even last year.
Many mainstream media outlets and some authors are doing their part to encourage consumption of animal fats and meat products in general as of late, according to Meyer. This represents a shift away from a longtime stigma that good health and meat consumption were opposing forces.
“Can this be sustained-that’s the question,” Meyer said.
Ultimately demand is driven by macro-factors, including income, unemployment rates, price of crude oil and price of retail gasoline, which has slowly edged up since the beginning of the year.
The West Coast port strike potentially damaged the United States' credibility as a trusted trade partner, Meyer said.
“When you have gasoline prices dropping by this much, you’re putting billions of dollars back in consumers’ pockets,” he said, although consumers look to be in wait-and-see mode and spending numbers have not coincided with the savings at the pump yet.
“I still think this is a positive thing for demand moving forward,” Meyer said.
“The biggest demand challenge for all species has been exports.” Since 2011, exports markets have been difficult, thanks in part to an uptick in trade agreements that spiked in the 1990s and early 2000s, but there is a challenge in that the number of trading partners is running low. Depending on the negotiation outcomes of the pending Trans-Pacific Partnership, export activity in the US could benefit, according to Meyer.
Another trade issue involves the West Coast port slowdown, to which a labor resolution was agreed to in February, and ratified this past week. The backlog of shipments at the US port, however, is not expected to be cleared until later this month. The backlash of the port issue is the surplus of shipments on the docks of trading partners now and the potential damage to the credibility of the US as a trusted trading partner.
The strength of the US dollar is the other factor affecting the protein sector in the US and its trading partners. “It’s certainly changed our bargaining position with buyers and our competitive position,” with other exporting countries.
In discussing the impact of avian influenza on the US market, Meyer says that since May 16, about 507 million turkeys have been lost (about 2.4 percent of annual production). What is unknown is how many of those turkeys were in breeder flocks. If any of them were, “that is going to have long-term impact,” Meyer said, adding that whole turkeys later this year during the holidays will likely come at a premium. Meanwhile, more than 28 million layers have been affected by AI, many of which were in Iowa, the nation’s leading producer of layers.
“The only meat impact so far has been on turkey,” he said, but there have been scares in the chicken broiler segment with the discovery of isolated incidences of positive cases in the heart of chicken-producing country, including in Arkansas. Broilers remain vulnerable, according to Meyer.