Barring a major disease outbreak that causes a human health crisis, chicken won’t be toppled this year from its longtime perch as the most consumed protein in America. That’s because the US will produce 54 percent more chicken than beef or pork. That is small solace to chicken processors who last year saw their chicken profits plummet from prior years because of strong competition from beef and pork.
All three proteins in 2017 reported record profits, at least for publicly-traded companies, and as this author wrote a year ago, the question was: “How can we possibly top this?” Astonishingly, beef processors did in 2018 and pork processors had another strong year despite the impact of tariffs levied on US pork exports by major markets Mexico and China.
It would take a bold leap to suggest these results could be repeated this year. But pork profits could be even better this year if the looming tariff issues are resolved, especially between the US and China. Beef processors will continue to have ample supplies of fed cattle to process and this year might provide even more record earnings for the third year in a row. This will require, however, continued strong beef demand at home and abroad and there is more of a risk of demand erosion this year than last year. The same is true for pork. Chicken profits however will remain depressed until processors reduce production to raise prices or unless beef and pork sales at retail and foodservice falter.
Further processors and consumers at home and abroad will enjoy ample supplies of red meat and poultry again. Total 2019 production is expected to reach 105.570 billion lbs., up 3.0 percent on 2018, according to USDA’s Economic Research Service (ERS). This would exceed the expected 2.4 percent increase in 2018 from 2017. ERS forecasts that 2019 broiler production will be up 1.7 percent on 2018 at an estimated 43.370 billion lbs. Beef production will total 27.810 billion lbs., up 3.3 percent on 2018, and pork production will set a record of 27.715 billion lbs., up 5.3 percent compared to 2018. Turkey production will total 5.905 billion lbs., up 0.5percent.
Demand therefore will be key to the financial health of the red meat and poultry industry this year. Potential negatives to continued strong demand will be stock market volatility in the US and overseas and trade issues. The latter includes tariffs and uncertainty that Congress will ratify the new US-Mexico-Canada Agreement (USMCA), which would replace the 24-year-old North American Free Trade Agreement. Congress is unlikely to take up ratification until a newly elected House is seated early this year. Moreover, House Democrats might try to alter terms of the agreement and delay or even block its ratification.
Two other clouds hanging over the industry were present in 2018 and are likely to remain this year. The first is the availability of skilled workers to staff the industry’s hundreds of processing plants. This is the No. 1 issue facing the beef industry, according to most of the industry’s 30 largest beef processors. The shortage is hampering their ability to operate at maximum efficiency. For example, JBS USA CEO Andre Nogueira has cited access to and retention of eligible, skilled labor to consistently maximize operational efficiencies.
Brian Sikes, president of Cargill Protein, said the labor shortage continues to be an ongoing concern that Cargill is working hard to address. “Changing immigration policies and limited labor pools in many rural areas also pose challenges. This combined with a strong economy, competition from manufacturing as well as agriculture, additional capacity coming on line in the pork and chicken industry, and unemployment under 4 percent all create competition for both skilled and unskilled labor,” he said.
Absent an enlightened development in immigration policies that would allow more foreign-born workers to enter the US, beef processors will again struggle to run plants at desired levels this year. Pork and chicken processors will face the same issue.
Another cloud is burgeoning transport costs caused by a nationwide shortage of truck drivers that appears to be worsening. In a business where the old adage is “sell it or smell it,” getting meat and poultry to customers and end users on a timely basis is critical. Companies coped with the issue last year but at significant added cost. The shortage is likely to remain all year and continue to add to processors’ cost of doing business.
Should beef demand at home and abroad remain strong, beef processors can expect to repeat their record-breaking results of 2018. Tyson Foods Inc., the industry’s largest beef processor in terms of sales, certainly thinks so. It achieved in 2018 what seemed impossible only a few years ago. It became the first beef processor to make more than $1 billion in a year. Its beef segment reported operating income of $1.013 billion for fiscal 2018 ended Sept. 29. This easily surpassed 2017’s record $877 million. It was also a stunning turnaround from 2015 when Tyson Beef had a $66 million operating loss.
MEAT+POULTRY’s complete industry outlook report is featured in the January 2019 issue.