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CME: 2013 Beef, Poultry Demand Index Down; Pork on Last Year Levels

13 March 2014

US - Last week’s meat export data for January completed the information required to derive demand indexes and real per capita expenditures for the month and the results are mixed, write Steve Meyer and Len Steiner.

Monthly demand indexes for beef, chicken and turkey were all lower than one year ago while pork gained on last year levels in January. The same year-on-year comparisons hold for real per capita expenditures, a metric closely related to the demand indexes.

The following chart shows annual demand index observations back to 1970. The last observations on the chart are labeled 2014 but actually represent the 12 months that ended in January. They are therefore hardly any different from the 2013 observations which represent the full calendar year. There is just one month of data that is different in the two sets of numbers.

2013 was a banner year for US meat demand as the indexes for all four major species increased in the same year for the first time ever. And as can be seen in the table on the chart, the 2013 gains were very healthy for pork and turkey, quite respectable for beef and, though relatively small, almost miraculous for turkey given how poorly its demand fared through September.

Real per capita expenditures for all meats and poultry fell 3.2 per cent short of year-ago levels in January. The decline was most heavily impacted by an 8.5 per cent shortfall for chicken RPCE. Beef’s January figure was down 4.8 per cent from one year ago and turkey’s was down 4.4 per cent. The only gainer for January was pork at +5.8 per cent. We believe these figures were significantly impacted by cold weather this year, especially since so much of that weather hit heavily populated areas along the eastern seaboard.

What drove last year’s strong demand figures for meat and poultry? These measures of demand give us very little help in answering that question. Both the indexes and RPCE tell us the direction and magnitude of demand changes but they tell us nothing more than the relative impacts of changes in price or per capita consumption, the two aspects of demand. The only certain way of assigning credit (or blame, perhaps) for demand changes is to estimate a properly-specified mathematical model that includes acceptable data for all of the determining variables. While certainly do -able, such models are usually longer-run in nature and are hardly ever estimated from monthly data.

So, let’s apply some knowledge of theory and logic. We know that the demand of any good is a function of consumers’ tastes and preferences, income levels (or budget constraints) and the prices of substitute and complement goods. We also know from empirical evidence that complement goods for meats and poultry are hardly ever significant in a practical sense. So how did the other three factors fare in 2013?

  • Consumer incomes (as measured by real per capita disposable income) were dead in the water last year, gaining only an average of 0.1 per cent per month. Thus incomes were, if anything, a drag on meat and poultry demand in 2013.

  • Meat prices rose by more (3.7 per cent) than did the prices of other goods (the CPI for all goods rose 3.1 per cent) meaning that meat lost in the relative price battle to other goods. Beef lost ground in the protein market. Chicken gained ground and pork lost versus chicken and gained versus beef. So, the relative prices of animal proteins were likely a demand wash.

  • And that leaves tastes and preferences. In spite of the seemingly never-ending challenges over production methods and animal rights, undercover videos that have shown some sectors at their worst and issues such as antibiotics and food safety, American consumers’ preferences for meat and poultry had to be strong last year to see demand measures grow in the absence of higher incomes or relative price advantages. That conclusion is encouraging! And we need plenty of that now!


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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