By Chris Hurt, Department of Agricultural Economics, Purdue University for Farmdoc Daily
Everyone is familiar with the phrase, "What goes up must come down!" Grain prices seem to be following this old axiom, with substantial questions remaining of "how far down?" For U.S. animal product consumption the phrase could be reversed, "What goes down must come up!"
How much did meat consumption "go down?" In 2007, meat consumption per person in the U.S. was 219 pounds for the big four of beef, pork, chicken, and turkey. Current USDA estimates for this year are down to 199 pounds per person, nearly a 10% decrease in seven years.
Out of the 20 pound total reduction, beef was down 11 pounds, pork was down five pounds, and chicken and turkey were down about two pounds each. In percentage terms consumption of beef has been down 17%, followed by 10% for both pork and turkey and a more modest 3% for chicken.
Why would U.S. consumers be eating so much less meat? Some argue that diets have changed and U.S. citizens have made lifestyle changes that include less meat and that the new norm will be the current smaller per capita levels of consumption. There is probably some truth to the lifestyle change hypothesis, but three other factors are more important.
The first of these is that retail meat prices had to rise sharply for animal producers to cover the much higher costs of feed from the 2006 to the 2012 crops. When feed prices rose, animal producer returns dropped toward losses. Over a period of years, those losses caused some liquidation of herds, which in turn reduced supply and increased consumer prices.
Retail prices of beef and pork in 2014 are about 40% higher than in 2007. This rate of increase was about 5% per year, far above the general inflation rate. People simply eat less meat when prices rise quickly. Retail chicken prices, in contrast, were up a far smaller 18% since 2007.
High feed and forage prices forced a national beef cow reduction of 12% from 2007 to 2014. In addition to high feed costs, Southern Plains producers had the additional problem of widespread drought. As a result of the double-whammy, producers liquidated 21% of the beef cows in that region, which is the largest production region.
A third critical factor reducing U.S. consumption of meats is related to domestic and foreign incomes. Domestic incomes were under pressure in the financial crisis of late-2008 and 2009 setting off the "Great Recession" from which employment and consumer incomes are just now recovering.
While U.S. consumers were under pressure, incomes in developing countries were rising. This caused U.S. meat exports to rise, pitting foreign consumers against domestic consumers for the limited U.S. meat supplies.
The next era for animal industries will be one of rebuilding herds and flocks. This will be a multiple-year process and will be characterized as a role reversal for the crops sector and the animal sector.
If the years from 2007 to 2013 could be described as the "Grain Era" in which crop sector incomes had an extraordinary run, the coming period may be described as the "Animal Era" when producers of animal products have strong returns.