Domestic meat demand for the past year remains well above year-ago levels, even though recent months continue to show some weakening.
Figure 1 shows annual demand indexes for pork, beef and chicken. Note that the last observation for each represents the period from September 2010 through August 2011, enabling us to compare demand for the same period one year earlier. By this measure, pork demand continues to lead the way, gaining 4.4%. Chicken demand softened slightly last month and now stands 3.6% higher than the previous year, while beef demand gained slightly in this 12-month measure to reach +0.9% from its 2010 level.
In comparing the monthly year-over-year figures, this marks the third month out of the last four in which chicken demand has been lower than one year ago. While not good, I must note that the declines for chicken have been between 1 and 2%, so the drop, though somewhat persistent, is not large.
The monthly year-over-year figures for pork are just the opposite. Pork demand has been higher than one year ago in 11 of the 12 months from July 2010 through June 2011, with three of those monthly indexes near or above 10% higher than one year ago. The first year-on-year decline of 2011 occurred in July, when pork demand was just 0.44% lower than last year. August’s figure was a rather shocking -5.3% vs. 2010.
The primary driver of that decline was larger exports. Remember that domestic demand indexes depend on per capita consumption, which depends largely on production and exports. We eat what is left over here in the United States. When exports grow by over 40% vs. one year ago, that leaves substantially less product for U.S. consumers to eat. If retail price reacts quickly to the reduction, the demand index may hold its own, although such a quick reaction of retail prices to lower domestic availability is rare. The result: A sharply lower domestic demand index even when wholesale and hog prices are high.
As supporting evidence, consider that the domestic demand indexes for May, June and July 2008, the period in which exports to China/Hong Kong spiked to record highs, were -8.2, -11.7 and -8.2.
The bottom line is that while demand indexes are useful in gauging the state of demand, one has to pay attention to the data used in the indexes and the factors that drive the data. I’m still a bit concerned about domestic meat demand since all of the indexes are at or below their levels of one year ago. It appears the soft economy is having some impact as beef middle meats and chicken breast meat are still having trouble commanding the price levels they once did. Those cuts have the largest exposure in the foodservice segment, by far.
On the other hand, beef production is falling and chicken production finally crashed last week, dropping 7.2% from year-ago levels and falling below the five-year average for the first time in over two years. As Figure 2 shows, chicken production levels have been moving closer and closer to year-ago levels for some time, but they remain up 1%, year-to-date. Last week’s reduction in chicken supplies follows major reductions in egg sets and, consequently, chick placements that commenced in May are just now showing up in production figures.
The challenge for chicken, as it often is for all meat/poultry species, has been getting weights lower. Note that the average weight for Oct. 8, the last week for which data are available, was 4.32 lb., only 0.2% higher than last year. That is a dramatic reduction relative to recent weeks and carries two implications. First, the obvious supply impact should help reduce chicken supplies and support prices. But more important is the fact that this reduction in weights very likely indicates a reduction in the number of large boning birds coming to slaughter, which might have a more direct impact on breast meat prices. Some traction for chicken prices would be good for the entire complex at this stage. Let’s hope we are right about there being fewer big birds and, thus, less breast meat soon.
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Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com