KANSAS CITY, MO. – Americans’ ongoing love affair with beef is driving a beef boom that is almost unprecedented in the modern history of the US meat and poultry industry. Beef has been the so-called King of the retail meat case for most of the last 50 years. But strong beef sales at the grocery store even before the COVID-19 pandemic began to upend food purchasing patterns have cemented beef’s position as the undisputed meat case leader.
March retail prices showed that consumers remain unfazed about higher beef prices. The US Department of Agriculture’s (USDA) retail Choice beef price averaged $6.48 per lb, up 7¢ from February and up 7.1% from March last year. Its All Fresh retail beef price averaged $6.39 per lb, up 9¢ and 7.2%, respectively. March is likely to be the last month to make valid meat price comparisons with a year ago, as April prices rose sharply and then skyrocketed in May. This was because of the dramatic reduction in red meat production caused by the large number of COVID-19 cases, illnesses and absenteeism among meat plant workers.
However, beef demand had been on several years of strength prior to the pandemic, said David Anderson, PhD, professor and extension economist in the Department of Agricultural Economics at Texas A&M University. A growing economy, falling unemployment and consumer preferences toward higher USDA quality grade beef were building demand, and 2020 did not slow beef demand, even with the increase in unemployment, he says. The All Fresh beef demand index scored 119 for 2020, the best in 20 years.
Beef will continue to benefit this year and next from the ways the pandemic has altered American lives. The pandemic suddenly forced tens of millions of Americans to work from home. It also meant the percentage of food eaten at home increased dramatically, as many restaurants partially or totally closed. Americans during this time re-discovered or discovered a love of cooking. Many people learned how to prepare and cook beef for the first time. They also realized their food dollars went far further in the grocery store than in restaurants.
Back to ‘normal?’
Industry observers, from market analysts to meat-buying executives, expect the pandemic-induced changes in people’s lives to remain largely intact. Workers and their employers both realize the benefits of working remotely, and that will become permanent for millions of Americans. Sit-down restaurants have reopened partially or fully in most parts of the country. But many observers believe eating at home will outweigh eating out for some considerable time.
During the pandemic beef benefited more than pork or chicken because beef has long been regarded as the “meat treat” while pork and especially chicken have been regarded as “survival food.” This will continue even though retail beef prices are 50% higher than pork prices and more than three times higher than chicken prices.
Unfortunately, the beef boom of the past year produced only one winner: beef processors. Cattle producers at all levels struggled from pandemic-depressed prices. Live cattle prices mounted a modest rally this past April but then began to fall back even as wholesale boxed beef prices soared. USDA’s weekly comprehensive cutout (cuts, grinds and trim) advanced more than $53 per cwt in the six weeks to the end of April. Putting aside the pandemic-induced rally in cutout values last spring, this was the biggest rally in such a period in industry history.
The result is that operating profits for fed beef processors soared from early in the year. They averaged a positive $310 per head in the first quarter and exceeded more than $600 per head the last week of April, according to HedgersEdge.com. Again, putting aside the pandemic-induced record margins last year, these profits were unprecedented.
Such an imbalance between wholesale beef prices and live cattle prices will likely continue into the fall, when cattle feeders might at last begin to recover some leverage over packers. Some analysts believe that live cattle prices could then rebound faster than expected. They might touch $130 per cwt live at times. Prices the last week of April averaged just under $119 per cwt.
The second half of the year will see beef production decline an estimated 3.5% year-on-year according to USDA and other forecasts. Total beef production for 2021 will still be up 1% on 2020 because production in this year’s second quarter was up 14% over last year. Of particular interest will be how wholesale beef prices respond to such a decline in production and what happens to retail beef prices.
Pork and chicken processors meanwhile will be hoping that high beef prices will attract more consumer dollars in the grocery store and in restaurants to non-beef items. The pork industry will also be hoping for continued large exports, especially to China, while poultry processors will be hoping that the “chicken sandwich wars” between fast-food chains continue unabated. Pork production for 2021 is expected to be flat with 2020 and broiler production is expected to be up 0.5%.
Wholesale chicken prices started 2021 “like a rocket” and climbed over 20% the first quarter, noted CoBank analyst Will Sawyer. That was enough to offset the double-digit rate of feed cost inflation that started last fall. Pork producers are also optimistic, with a positive outlook for exports and strong domestic demand key, he said. China has slowed its hog herd rebuilding due to increased African swine fever (ASF) cases last winter. That is helping drive the positive US outlook for the remainder of the year, he said.
As anticipated, early year pork exports to China/Hong Kong trended lower than the enormous volumes shipped in 2020. But the region continues to be the largest destination for US pork, said the US Meat Export Federation (USMEF). China’s efforts to rebuild its domestic swine herd have made progress. But production remains well below pre-ASF levels and several cases have been reported this year, renewing concerns about disease-related setbacks. Through February, exports to China/Hong Kong fell 25% year-over-year to 147,213 tonnes and were valued at $329.8 million (down 32%). But exports were 2.7 times larger than in the first two months of 2019, USMEF said.
China is also becoming an increasingly important market for US beef. The surge in beef exports to China continued in February from January, reaching 8,644 tonnes valued at $66 million. This was far above the minimal levels posted a year ago and made it the fourth-largest destination for US beef. Through February, exports were more than 1000% above last year’s pace in both volume (16,506 tonnes) and value ($124.1 million). Beef exports to China already exceed the full-year totals reached in 2019 prior to the United States securing expanded beef access through the Phase One Economic and Trade Agreement.
A microcosm of what poultry processors faced earlier in the year and what they face going forward came when the second-largest processor, Pilgrim’s Pride Corp., announced its first quarter 2021 results. While still reeling from the past year’s COVID-19 pandemic and related labor shortages, it also faced headwinds due to weather-related events and rising input costs. These posed challenges to its operations and were reflected in the results.
Pilgrim’s, however, said US demand is on a recovery trend as the foodservice segment improves and retail and quick-service segments hold steady in the face of rising input and operating costs and disruptions due to extreme winter weather conditions. Notably, the company said its large bird deboning reported a spike in pricing for the quarter compared to a year ago as Mexico’s demand from the end of 2020 continued into 2021.
Labor constraints dramatically impacted meat and poultry production last spring and early summer. The meat industry’s huge investment in worker safety inside and outside plants successfully addressed these constraints. But absenteeism, especially in beef plants, continues to impede full production. The labor shortage is likely to remain a big issue the rest of this year.