May 9, 2022
In my March installment I discussed in some detail the concept of demand and how strong consumer demand can make everyone better off – including the consumer. The latter might be a shock to some but think about it: If consumers as a whole did not see themselves being better off by a) buying more of a product at a given price or b) paying more for a given amount of product, they simply would not do it. They would go to some other product(s). And, while I and likely most of the readers of this column would not go to pork alternatives readily or at all, not all consumers share our affinity for pig meat.
Thankfully, the data from March indicate that few of our fellow consumers here in the United States are making such a serious decision. That is true for pork and for beef and poultry as well. By any measure meat demand is strong and, if anything, strengthening.
Real per capita expenditures for pork grew by 12.1% year-on-year in March. That remarkable growth pushed the year-to-date figure for RPCE to +5.8% (see Figure 1).
This growth was achieved by a 5.8% yr/yr increase in per capita consumption and a 7% increase in the real (ie. deflated) price of pork. Note the word "deflated" there. Much has been made of soaring prices in general and food and meat prices in particular. But this calculation removes inflation from the pork price and thus compare "apples to apples" with year-ago price and consumption levels.
Simultaneous higher consumption and higher real price means only one thing: Higher pork demand! And March's results are a continuation of the strong pork demand we have witnessed since 2019 (Figure 2).
Much has been made by consumer advocates and the Biden administration about higher meat prices. Most have laid the higher prices at the feed of packing companies and "highly concentrated" sectors. Beef, of course, is the most concentrated of the major species with pork and chicken following. But the thing that everyone misses, it seems, is that concentration in beef, pork and chicken slaughter and processing is nothing new. These sectors have been moderately to highly concentrated for years and only now do retail prices appear to be a problem to many.
While any business would like to "name its price," there are limitations to how much that can be done in the protein sectors. While Smithfield and JBS and Tyson and Hormel and Indiana Packers and ... you get my drift ... want and try to convince consumers that their products differ from their competitors, they can go only so far in that differentiation. At some point, pork is pork, chicken is chicken and beef is beef. Some allow for more differentiation than others but all are subject to an over-arching interaction between supply and demand.
The most important issue here is the magnitude of the changes in domestic supply relative to the changes in prices. Domestic supply is total production plus imports minus exports minus changes in inventories. In the case of pork, this year's lower exports and higher imports have increased domestic supply/availability from what it would otherwise have been.
Figure 3 shows the long-run history of domestic supply = availability = disappearance = consumption for the four major meat/poultry species. The pork forecasts are mine while forecast for the other three species come from the Livestock Marketing Information Center in Denver. Of particular importance to this discussion are the changes from 2021 to 2022. Pork per cap consumption if forecast to decline 1.2% from 2021 this year. Beef consumption if forecast to fall 1.4%, chicken consumption to grow by 0.7% and turkey consumption to decline by 0.6%. Modest changes all.
But look at Figure 4. Real meat prices have increased sharply on these modest supply reductions. The real price of pork is up 11.3% from last year's average so far in 2022. The real chicken price is up 13.5% and the real beef price is up 12.4%. The rule of thumb has always been 2% increase in price for a 1% decrease in supply. These price moves are much greater – and could only be achieved with strong demand.
Will this last? Probably not – to this extent, anyway. The higher prices of each species are supportive of the demand for the other species. Collective consumer incomes are good but inflation will eat into purchasing power. So it really boils down to the black box of consumer tastes and preferences. I think this was the big positive factor of the past two years so the question is whether the improvement is permanent or transient.
Any economic variable that it this far outside its recent norms leads me to think it will revert to more normal territory. But the strong demand of recent months does not appear to be weakening. Perhaps everything that goes up do not really have to come down.
Source: Steve Meyer, Partners for Production Agriculture, who are solely responsible for the information provided, and wholly owns the information. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset. The opinions of this writer are not necessarily those of Farm Progress/Informa.
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