Meat and poultry demand continued to struggle in the second half of 2011, but still stands a chance of being higher for the year. Figure 1 shows annual demand indexes for pork, beef and chicken from 1970 through 2011. The data through 2010 are for calendar years, while the 2011 observation covers December 2010 through November 2011, the last month for which complete data are available. I use the 12-month period to capture the full gamut of seasonal variation in that last observation. Using a year-to-date figure would omit part of that variation which, in most instances, is quite important.
Through November, pork demand had fared better than either of its major competitors, gaining 1.2% from the same period 12 months before. The pork index of 92 says that pork demand is 8% lower than it was in the index’s base period of 1985. Note that all three indexes equal 100 in that year.
Both beef and chicken demand remain on the positive side of the ledger, but just barely so. That is especially true of chicken, which was only 0.3% higher for the December-November period. These struggles continue the pattern of recent years after the demand index for chicken grew from 94.9 in 1982 to 146.2 in 2005. That 23-year period saw 18 positive years vs. only five negative years.
The chicken demand index then fell four straight years before growing marginally in 2010. It is very likely that 2011 will again see a decline in chicken demand when December data is available.
The bad news is that these “annual” numbers for 2011 have been getting worse and worse as the year has progressed. Figures 2 through 4 show year-on-year comparisons of monthly indexes. That is, the last observation in each chart shows the demand index for that species in November 2011 vs. November 2010.
As you can see, these monthly indexes indicate that the demands for all three species were very strong from mid-2010 through the mid-2011. Chicken demand began to falter in May, plunged in September and saw one of its largest year-on-year declines ever in November. Pork demand maintained its growth through June, but has been 4-5% lower than last year since July. Beef demand has been up and down since mid-2010, but remained on the growth side for most months through November.
What will be the key factors for domestic demand this year?
First and foremost will be the performance of the economy in general and its impact on consumer spending. Per capita disposable income growth fell from 2.7% (year-over-year) in the fourth quarter of 2010 to -0.7% in the third quarter of 2011. There are some signs that the trend may be changing but this important measure of consumer well-being (and purchasing capacity) is 4% below its pre-recession peak in mid-2008 and is only 1.8% higher than the low it reached in the fourth quarter of 2009. If consumers are going to spend more money on meat and poultry, they need more income.
And they likely will spend more for meat and poultry in 2012 simply because beef and chicken prices are likely to rise significantly. Beef production will fall sharply in the last half of the year, pushing already-record wholesale and retail prices even higher. The chicken output reductions that began last fall will continue and probably get larger, finally pushing chicken prices higher as well.
Pork prices are still near the record levels set in September and will remain high. But retail pork prices will almost certainly decline this year relative to the prices of both beef and chicken. This price effect will strengthen pork demand, but the question is whether it will be enough to offset the negative impact of the income effect described above. The answer remains to be seen, but I think it is likely, especially if the economy returns to a recovery mode and incomes rise a bit.
Is soft pork demand an indictment of any one demand factor, such as Pork Checkoff promotions and advertising? Absolutely not. The indexes only describe how demand is changing. They say nothing in and of themselves about why it is changing. I am confident that consumer incomes and consumer spending was the major negative force in the domestic market in 2011. I don’t know how effective your Checkoff promotions were, but I will say that the indexes may well have been even worse had those promotions not been in place. The impacts of these separate factors can be derived, but it requires some complex modeling.
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Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com