2022 meat industry outlook

 

By Steve Kay, Food Business News

01.12.2022

 

KANSAS CITY – The Gold Rush era of the 1800s produced riches that few could have dreamed. The same was true of US beef processors over the past four years, especially in 2021. Both fed and non-fed processors made more money than they could have imagined. The irony was that profit records were made and shattered both because of and despite of the COVID-19 pandemic.

 

The COVID virus, its omicron variant and possibly yet another variant, will continue to be the biggest single factor in 2022 in determining the profitability of the US meat and poultry industry. How much the new variant spreads in the United States and globally will determine whether the foodservice sectors in key countries continue their recovery or see further setbacks.

 

If 2021 is any guide, demand for US red meat and poultry should remain strong at home and abroad. Consumers will continue to spend most of their food dollars at retail unless restaurants and other foodservice outlets stage a big recovery. But red meat, notably beef, faces headwinds at retail that cannot be ignored.

 

Significant inflation in retail meat prices last year began to impact what consumers could afford to buy. An end to supplemental financial aid for many Americans removed a key reason why those consumers were able to trade up in their meat purchases last year.

 

The US Department of Agriculture forecasts domestic protein production (beef, pork, chicken and turkey) should increase slightly this year versus last year. Beef production might decline 2% or more; pork production might decline 2%; and chicken production may increase by 1%. But as market analyst Andrew Gottschalk of HedgersEdge.com points out, supply is only one half of any price equation. Reports of rising wages are being eroded by inflation, he noted in late November.

 

“Thus, real earnings are in decline,” he said. “People experiencing the most harm are those in the lowest income groups. These groups have the greatest impact on beef demand, as they spend to move up the protein ladder when their real wages are increasing.”

 

Once supplemental income payments cease, the impact of declining real wages will be realized, Mr. Gottschalk said.

 

“How long it might take for wage gains to again exceed the rate of inflation is the trillion-dollar question,” he said. “In the interim, risk is increasing that the ongoing decline in real wages could limit demand for beef.

 

“The absolute price difference between the competing meats will become prioritized by consumers and beef demand will likely suffer. Relative value will become secondary to consumers in determining their meat purchases, slowing some price advances even in the face of declining supplies.”

 

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