Food inflation is eating into Americans’ budgets and reducing consumer confidence in the economy, US columnist Steve Kay reports in his latest Kay’s Cuts monthly contribution for Beef Central. Many of the patterns now being seen among US consumers are also being observed in the Australian market.
BEEF might be King of the Meat case in United States grocery stores and supermarkets. But chicken wins hands down in terms of per capita consumption, and has done so for years.
In the US, beef is still regarded as the ‘meat treat’ and chicken the ‘survival food’ in terms of protein options.
Now that food inflation stalks grocery store aisles and talk is increasing about the US economy slipping into recession, chicken will remain well ahead of beef as the affordable protein.
The three main sectors of the US meat and poultry industry face different hurdles in the second half of 2022.
The biggest challenge facing the beef processing sector will come late in the year as ongoing herd liquidation caused by drought starts to show up in smaller supplies of both fed and non-fed cattle.
Pork processors face the challenge of getting their margins back into the black after losses that began in March. Chicken processors face the ongoing challenge of protecting their flocks from avian influenza.
Food inflation is eating into Americans’ budgets and reducing consumer confidence in the economy
The main challenge common to all sectors is food inflation that is eating into Americans’ budgets and reducing consumer confidence in the economy.
Inflation in May was 8.6pc above what it was a year earlier. While few economists believe the US economy will slide into recession any time soon, concerns about that occurring could alter consumers’ protein buying patterns for the rest of the year.
An analysis of the most widely-consumed protein, chicken, suggests the poultry sector is best positioned to deal with inflation at whatever level. In fact, as demand for chicken domestically and globally increases, the biggest issue might be one that other sectors would like to have: tight supplies.
Despite cost pressures and operational challenges, the global poultry market is bullish, with high demand and tight supply, Rabobank noted in its third quarter 2022 report. The industry’s biggest challenge is operational, with high feed and energy prices due to inflation, labor availability and avian influenza (AI), wrote Nan-Dirk Mulder, senior analyst of animal protein at Rabobank.
One consequence of this challenging context is that supply will be tight, Mr Mulder said. Mid-sized and small producers are downscaling in response to higher working capital requirements and risks. New investment projects have been delayed, given the rise in investment costs, with high steel prices, rising interest rates, high logistical costs and a tight labour supply.
Still, poultry demand remains high as many consumers are choosing to substitute beef products with lower-priced chicken, he said.
Weaker economic growth and reduced consumer confidence, in part related to Russia’s invasion of Ukraine, would likely lead to more consumers trading down to chicken. Rabobank predicted a 0.5pc to 1pc increase in global production, at most, for 2022.
As higher protein prices began to impact American consumers in the first half of this year, it was clear that chicken would have a price advantage over the other two main proteins (unlike Australians, US citizens eat very little lamb).
Chicken three times cheaper than US beef
The average retail price of chicken in May was US$2.42 per pound, according to USDA. This was up 18.6pc from May 2021 but was still half the price of pork ($4.89 per pound) and just over three times lower than the average All Fresh beef price ($7.37 per pound).
US retailers by early June were publicly talking about how food inflation was causing more of their customers to buy more pork and chicken. This trend will continue through the rest of the year unless inflation significantly abates, say economists. The most pressure will be on beef, as it is by far the highest-priced protein.
The first signs of that pressure came in June as US beef processors were forced to dramatically lower their asking prices on most middle meat items to attract forward sales. More consumers started to trade down in their beef purchases to ground beef, as they did in the 2009-2010 Great Recession, even though prices for its various forms were record-high in May and June.
US beef processors will continue to see pressure on middle meat prices. More Americans than in a long time indulged their taste for high quality steaks while they were collecting federal stimulus money. But once those funds ended, many consumers began to revert to more frugal beef habits, especially as beef prices remained high.
The May All Fresh beef price noted above was 9.5pc above May 2021, while the average price of USDA Choice grade beef in May was up 10.3pc.
On the supply side, US beef processors will face a shrinking supply of slaughter cattle by the middle of the fourth quarter.
Beef cow slaughter through the first half of the year was up about 200,000 head or 9.5pc on the same period last year.
Widespread drought forced the increase. Drought also kept forcing light cattle into feedlots. The June 1 Cattle on Feed total was record large for the date.
This means there are now fewer cattle outside feedlots to be placed, which means US finished cattle supplies will start declining in October or November.