Meat Values Stoke Revenues; Inflation Offers Pause, CoBank Says
Consumers are stretching their dollar as unrelenting food inflation and a slowing global economy continue to pose challenges. For the red meat and poultry sector, this means demand obstacles will pose concerns through the remainder of 2022 and into 2023.
But Brian Earnest, lead economist, animal protein at CoBank, says the remarkable resilience of consumer willingness to pay for meat and poultry since the start of the pandemic encourages industry optimism.
“At this point, nothing really sticks out as a major warning that consumer desire for animal protein is waning, rather retailers are shifting their focus to “value” items such as ground beef, chicken breasts, and pork chops,” Earnest says in CoBank Knowledge Exchange’s quarterly report.
Retail grocery feature activity for meat and poultry have been a bit muted through the summer. Compared to the weekly ad rates in previous years, meat features have steadily fallen 10%-25% below 2019 levels this year, with prior year supply chain issues chiefly to blame, he points out. However, supply chains continue to recover and USDA forecasts domestic per-capita red meat and poultry consumption at a new record high of 225 pounds in 2022.
“Aggregate meat and poultry production in 2022 will not be much different than a year ago, but production by category and export share will show some variation. Strong export demand for U.S. meat and poultry has played an ever-increasing role in disappearance in recent years,” Earnest says.
Even though total U.S. protein exports are down more than 7% YTD year over year and forecast lower in 2023, he credits that to supply side constraints and not global demand.
Hog Slaughter on Par with Year-Ago Levels
After starting 2022 below year ago levels, market-ready hog slaughter improved during the second quarter, Earnest says. Now, weekly harvest is more in-line with expectations and is on par with 2021. The improved processing capacity utilization has come with lower hog weights, further straining market-ready hog availability.
“While growth seems like an obvious direction for this sector given the competitive landscape, the breeding herd was reported at a five-year low of 6.16 million head in the most recent Hogs & Pigs report. Pigs per litter have also been relatively flat, suggesting dampened supply growth for the foreseeable future,” Earnest says.
Although hog prices typically peak in June then subside through the remainder of the year, tighter hog availability and improved processing led nearby lean hog futures to annual highs in August, topping out at $122/hundredweight (cwt).
“Prices have eased back towards $100 since then, a level well above typical seasonal highs, as strong consumer demand converges with expectations of tighter red meat supplies,” he says. “Likewise, the pork cutout spent much of the most recent quarter above $120/cwt, about $50 above the five-year average. While the cutout has seen universal support, hams (which make up about 25% of the cutout value) have been remarkably strong.”
Export Outlook
CoBank expects strong interest will continue through the holidays as buyers face lower turkey supplies.
Meanwhile, with China rebuilding its domestic hog population following an outbreak of African swine fever in 2018, opportunities for U.S. pork exports to China have become more limited. Total pork exports are down 13% year over year. Still, Mexico has picked up most of that volume, Earnest notes. Shipments are steady to most other export destinations, which makes CoBank cautiously optimistic on the global front.
Read More from Farm Journal's PORK:
Don’t Underestimate Inflation in Your Forecast Model
Pork Producer Margins This Year Could Rival 2021, CoBank Says
