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Animal protein production slows, inflation to pressure consumer budgets
By Brian Earnest
To begin 2022, the animal protein production sector began faced numerous headwinds.
Drought concerns for Western cattle feeders, tighter feed supply expectations on reduced South American output, a labor supply crunch, and higher energy prices all suggested moderately lower output despite optimism over rising meat prices.
Feeding challenges have most recently been exacerbated by the risk to global grain stocks due to Russia’s invasion of Ukraine. However, prices for livestock, meat, and poultry have continued higher, promoting cautious optimism for producers.
With the exception of beef, protein output has failed to advance in the early stages of 2022. Labor and lack of market ready hogs continue to play a role in reduced pork output which is down 7% year-over-year.
Weather issues complicated cattle processing early in January, but the weekly slaughter has picked up pace since then and is now up 1% YoY. Likewise, broiler harvest has been advancing moderately, up 1% YoY, but still remains 3% below 2020 levels.
Demand from the food service sector finally looks to be finding consistency after recovering from the omicron wave.
And as grilling season begins, robust demand is expected to continue to pressure supply despite average retail meat and poultry prices rising 10% in the 12 month period ended February.
U.S. protein export values jumped by 22% during 2021 and while China’s imports of U.S . pork have slowed down we expect exports to be strong again this year, as Mexico continues to buy record levels of pork and China keeps buying more U.S. beef.
From a financial standpoint, 2021 was a phenomenal year for pork. At one point, live hog values represented a staggering 35% of retail pork value (the portion that the producer received from prices paid by consumer) a level not seen since the highs in 2014.
While there is still quite a bit of unknown regarding consumer response to higher meat prices, this year appears to be shaping up for similar results as retailers scramble for affordable protein options and exports continue to pressure supplies.
Returns for a farrow-to-finish hog operation estimated by Iowa State University posted a $21.36 per head profit for the month of February, up $15.73 per head YoY and a $24.24 per head gain over the prior month.
Complications in the path forward are the inflationary pressures from an input standpoint. Additionally, rising interest rates have the potential to put more producers on the sidelines.
However, we expect the impact will largely be minimized by other factors, including limited access to labor,
USDA’s March 1 Quarterly Hogs and Pigs Report was moderately bullish but continued in line with the last report in terms of implications for the market.
The U.S. hog inventory total was down 2.3% YoY, which was larger than analyst expectations and the lowest total since 2018 for the same period.
With the breeding portion of inventory total down nearly 2% YoY, and at a five-year low of 6.1 million head pork supplies are sure to be hampered for 2022.
Earnest is a leading protein industry analyst with CoBank.
Meat industry not threatened by plant-based meat alternatives
New research, published in the journal of Applied Economic Perspectives and Policy, show that while sales and market share of new-generation plant-based meat alternatives have grown in recent years, those gains haven't translated into reduced consumer spending on animal meat products.
For this study, the researchers obtained weekly Nielsen scanner data from the first week of January 2017 to the second week of July 2020 on fresh meat expenditures at grocery, drug, big-box, dollar and military stores across 40 U.S states. Study categories included plant-based meat alternatives, beef, chicken, turkey, pork, other meats (such as lamb and duck) and fresh fish.
Results showed that plant-based meat alternatives constituted only 0.1% of average total expenditures on fresh meat during the study period – but during that same time frame the market share increased four-fold, to 0.4%. Beef topped fresh meat sales at 46%, followed by chicken at 23%, pork and fish at about 12% each, and turkey and other meats accounting for less than 5% of fresh meat sales.
Beef and meat alternatives were the highest-priced options, with beef costing an average of $5.44 per unit and PBMAs averaging $4.84 per unit. Of all the choices studied, expenditures of the plant-based goods tended to increase the most when those products were on sale. Reduced prices on beef and chicken lowered demand for plant-based meats, but lower prices on imitation meat didn't have much of an effect on demand for animal protein sources.