Although meat demand remains strong, consumers will have to battle higher meat prices this summer, putting to the test whether they are willing to pay more for meat amid rising inflation costs.
CoBank’s latest Quarterly report predicts higher retail meat prices throughout 2022.
“The sharply higher costs for feed, energy and labor have yet to fully impact wholesale and retail meat prices, but that will soon change,” said Brian Earnest, lead animal protein economist with CoBank. “And as consumers notice their dollar is not going as far as it used to, they may trade down at the meat case, with chicken being the primary beneficiary.”
Inflation for consumers
Smaller grain harvests and the Russia/Ukraine war have sent animal feed prices higher, up 20-30 percent in just a few days after Russia invaded Ukraine in late February. Labor and energy are also major expenses that continue to rise, CoBank said. However, higher feed and energy costs have yet to fully impact wholesale and retail meat prices.
Consumers have mostly assumed higher production costs so far, but CoBank expects meat consumption will remain strong through 2022 despite the impact to consumers’ budgets.
“The intense media coverage of food inflation in recent months has prepared consumers, in a somewhat perverse manner, for higher food prices, which is minimizing ‘sticker shock’ in 2022,” Earnest said.
The combined cutout values of beef, pork and chicken have climbed over 20 percent higher in the first quarter, so consumers are likely to continue seeing higher prices at the meat counter.
Beef demand
Beef consumption typically declines during inflationary periods, but it has not since 2020. CoBank says from 2009-15, beef prices rose 7 percent on average per year, and per capita beef consumption declined more than 11 percent.
While prices over the past couple of years have increased by more than 20 percent, consumption still increased by 1.4 percent. Beef consumption has risen 8.6 percent since 2015. USDA expects a slight decline in beef pounds consumed through 2022-23.
Producers have had more than their fair share of challenges over the past couple of years. Temporary processing plant closures in 2020 led to backups in the fed cattle supply that we continue to face today. With worsening drought conditions across the West, the nation’s beef herd has declined, with cow and replacement heifer numbers down 12 percent since 2017. USDA predicts a 2 percent decline in beef and pork production in 2022.
Chicken was expected to pick up the slack for lower production numbers, but broiler production growth averaged barely over 1 percent from 2020-21. This was due to uncertainty regarding the future of food service, high feed costs, chick survivability and highly pathogenic avian influenza, according to CoBank.
“The bottom line is that slightly higher poultry production and slightly higher red meat imports will leave the domestic meat and poultry supply essentially unchanged in 2022,” Earnest wrote in the report.
Although wages are increasing, they are not keeping pace with inflation, which could affect meat purchases. However, Earnest said CoBank does not anticipate consumers “trading down” in their protein purchases and favoring chicken as severely as in 2006-15 when chicken grew in popularity in fast-casual restaurants. However, the possibility is still there at a smaller impact.
“If consumers’ real incomes continue to decline along with higher meat prices, we may finally see a significant change in consumers’ willingness to pay for red meat,” Earnest concluded. If so, the broiler industry may see modest growth and strong margins, but CoBank doesn’t expect it will rival the expansive growth that occurred from 2017-20 when eight new broiler plants were built. — Anna Miller, WLJ managing editor
