CME: 2015 US Meat Expectations in Context of Long-term History

US - Steve Meyer and Len Steiner explain how the results of US meat and poultry markets in 2014 and expectations for 2015 fit with longer term history.
calendar icon 16 January 2015
clock icon 4 minute read

While we — and most of you — are quite concerned about the future, we must remember the advice of any number of philosophers/thinkers/charlatans that ignoring or not knowing the past will doom us to repeat it!

With that in mind, let’s look at long run patterns for a few key consumption and expenditures figures and their prospects for the coming year. Consider the charts at right from the Livestock Marketing Information Center.

Per capita consumption trends are changing again. We must always be careful when considering this measure of “success” in that meat and poultry products are storable only at great cost and thus we generally eat what we produce in any given measure of time. Therefore, per capita consumption from year to year is more a reflection of output than anything else. But look at the same measure over time and consumer preference, relative product prices — and thus costs and efficiencies – are revealed. What is clear in the top chart at right is that chicken gained steadily in abso? lute terms on all other proteins until 2006 and then has held its own in terms of consumption while the other species have struggled since then. The inflection point for all species, of course, is the beginning of subsidized and mandated ethanol and its impact on feed prices. Add in some severe drought years and you get the constant decline of beef consumption which is forecast to continue in 2015 and 2016 as the industry tries to expand. Chicken and pork consumption, on the other hand, are expected to rebound slightly as they take quicker advantage of lower feed prices.

Expenditures for meat proteins First, note that the last observations in the middle and bottom charts at right are for 2014 so they correspond to the consumption levels marked by the dashed line in the top chart. Second, the 2014 observations in the bottom two charts are based on January thru November data and were computed by Paragon Economics, not LMIC. Lower per capita beef offerings have been a significant factor in the growth of beef expenditures. But 2014 chicken expenditures were higher on slightly larger per cap offerings and pork expenditures were sharply higher in spite of a reduction of just 0.5 pounds per person (1.1per cent ) in per cap availability.

Further, the increase in beef expenditures was much larger than would have been expected by historical demand levels. We do not believe this uptrend in expenditures is sustainable given pending output increases. Those inelastic demand functions work both ways. Where a one percent decline in supply caused a two or three per cent rise in price, the opposite is also true assuming the demand function is stable. Can the recent interest in protein and comfort with animal fats keep demand moving upward? Will income levels increase enough to keep demand strong?

Real (deflated dollar) spending on proteins is still low. Even with the price increases of the past two years, meat and poultry protein is a tremendous value for consumers. U.S. consumers’ purchases of the four major species required just 1.66per cent of their total incomes in 2013 and are projected to require only 1.72per cent in 2014. What a buy on such wonderful products!

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