This year still has one month to go. But barring a last-minute shock, 2017 has turned out to be much better than expected. The U.S. meat and poultry industry last January faced a blockbuster protein year. Several equities and other analysts forecast doom and gloom for livestock prices and for profits for publicly-traded companies.
However, the exact opposite occurred, because demand at home and abroad for beef and pork was far stronger than forecast. This turned out to be the industry story of the decade for there has never been a year when consumers drove industry profits to new record levels. This allowed the prices of both live and feeder cattle to be stronger than expected, especially this fall. This means that their average prices for the year will be slightly higher than in 2016.
The industry’s fortunes have historically relied on the strength of demand because all wealth to the industry comes from consumers at home and abroad. Stronger than expected demand for beef and pork in both markets this year surprised most in the industry and helped prices for cattle and beef, hogs and pork, to be higher than forecast.
Demand is likely to remain strong next year, as the macroeconomic indicators are positive. U.S. gross domestic product (GDP) is growing steadily year-over-year. The New York Fed in November raised its fourth quarter GDP growth estimate to 3.8 percent and 4 percent might have been achievable. An annual growth of 4 percent this year would add approximately $800 billion to total U.S. GDP. This is a big positive as consumer spending accounts for approximately 65 percent of GDP.
Another key factor is that Americans who earn the lowest wages are finally seeing larger percentage increases in their wages than those above them. This will enable those who can only afford to buy beef infrequently to buy it more often, and more pork as well. But Americans will also keep eating more chicken because of its price.
Production of beef, pork and broilers 2014-2016 inclusive saw beef production decline to a multi-year low in 2015. This was because extreme drought conditions in 2010-2012 forced significant beef cow herd liquidation. Production has since recovered as beef producers started aggressively rebuilding their cow herds in 2014. Pork production exceeded beef production in 2015 but then slipped back. Broiler production increased slightly over the three-year period and will continue to do so.
Another positive factor this year was the record profits enjoyed by red meat processors. These profits allowed packers to pay more for livestock than had they made their usual modest margins. Can such a banner year be repeated? The cautious answer is yes but it will take even stronger fundamentals than last year. The key ingredients will be demand at home and abroad, an increased supply of livestock and an even stronger U.S. economy.
The only shadow currently hanging over the industry is the contentious talks between the U.S., Canadian and Mexican governments to renegotiate terms of the North American Free Trade Agreement (NAFTA). The entire agricultural sector, including the meat industry, has lobbied anyone who will listen as to the vital importance of NAFTA to U.S. agriculture and how NAFTA’s agricultural provisions must be maintained.
They no doubt have reminded the White House and members of Congress that America’s food and agriculture sectors account for roughly one-fifth of the country’s economic activity. The two sectors support 22.8 million jobs, which equals 15 percent of total U.S. employment. These jobs pay $763.12 billion annually in wages. The sectors have a direct output of $2.82 trillion and pay $891.4 billion in business taxes. The sectors annually export $146.32 billion of products.
Data from the Department of Commerce says that meat packing, meat processing and poultry slaughter and processing in 2015 had total sales of $211.5 billion. This included: meat packing $99.250 billion, meat processing $48.326 billion and poultry slaughter and processing $63.980 billion. These numbers were likely much larger in 2017 because of larger production.
Industry lobbyists will also have pointed out that the meat and poultry industry employs nearly 900,000 workers. More than 488,000 work in meatpacking plants (those that slaughter animals) and nearly 119,000 work in meat processing plants that further process meat cuts into ground beef, hot dogs, ham and other products. Another 281,000 work in poultry processing plants.
They will also have pointed out the value of NAFTA in boosting exports. The U.S. meat and poultry industry contributed $16.22 billion to the estimated $135 billion in agricultural exports in 2016. Industry analysts say the future strength and growth of the U.S. meat and poultry industry depends upon the expansion of trade into foreign markets, particularly as domestic per capita consumption of meat and poultry remains fairly stable and production increases, as it will do again next year in all three proteins. — Steve Kay
