Final data for 2006 domestic meat consumption will not be official until USDA publishes its annual summaries for livestock and poultry slaughter around March 1, but enough monthly data are now available to get a clear idea of this key number.
Figure 1 shows estimated consumption by species, courtesy of the Livestock Marketing Information Center (LMIC) in Lakewood, CO. These data show that 2006 consumption will be a record high at just over 221 lb./person. However, the intra-year pattern indicates that the growth occurred in the first quarter while consumption declined in the fourth quarter.
It is important to realize that consumption is always a direct function of production. With small adjustments in inventories, production and exports determine what is left for U.S. consumers.
U.S. meat production moderated during the second half of 2006, as chicken producers tried to manage supplies to help prices, pork producers kept carcass weights steady with year-earlier levels and beef producers reduced the amount of carcass weight increase. The pork and beef initiatives were mainly a response to high feed costs. At the same time, pork exports were cooking and beef exports were recovering, even though they were still far below pre-BSE levels.
The trend on total meat consumption is flat and still begs the question: "Have we reached a meat saturation point?" Economists have asked this question quite a few times over the past 20 years and the answer has always been "no." That doesn't mean the answer will be "no" this time. Since this plateau is higher than those of the past, we must be closer to any saturation level that may exist.
Given the relationship between production and consumption, this one is looking more and more like a ceiling. Rising feed costs and other production costs will eventually cause meat prices to increase. Unless consumer demand increases at the same time, the quantity of meat consumed will have to decline.
What's Ahead for Pork Demand?
Relatively flat consumption and lower real prices at the consumer level mean that U.S. domestic demand for all three major species fell in 2006. Figure 2 shows data from the University of Missouri that quantifies these declines. The 7.7% fall in broiler demand is the largest since 1974 and the real driver for the current rationalization of chicken production. Take a look at egg sets and chicken slaughter and production in this week's Competing Meats table. Those are very big negative numbers for the chicken business.
No one should conclude from Figure 2 that the pork checkoff is not doing its job in marketing pork in the United States. Pork demand is determined by a number of factors that are beyond the control of pork producers and their promotion programs. The entire pork checkoff takes in about $50 million annually. Only about half of that goes to demand enhancement. That means that $25 million is being used to impact a market valued at $42 billion. Producers' advertising budget represents 0.06% of total market value. That is very small.
Recall that demand for a product is a function of the price of the good in question, the prices of other goods, consumer incomes and consumer tastes and preferences. The price of chicken was a major negative influence on pork demand in 2006. So were the prices of gasoline and other energy sources. And the wave of positive tastes and preferences that sent meat demand soaring with the Adkins diet and other high-protein diets has certainly waned.
The bottom line is that your $25 million likely did some very good things, but simply got swamped by the negative impact of other demand factors in 2006. These things happen, but they should not be used as a reason to stop trying.
The National Pork Board is involved in several evaluation activities to monitor and measure the effectiveness of their programs. A negative move in pork demand doesn't necessarily mean that those checkoff programs have been unsuccessful. It may well mean that they are too small to stem the entire negative tide -- even though they have slowed it down a bit in producers' favor.
Many things affect these demand indexes and producers must be careful to account for all of those factors as they make decisions about the future.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.