Meat and gas prices bring down protein consumption

Mar 2, 2012
by DTN

Per-capita consumption of meat in the U.S. will likely continue to decline over the next two years, largely because of higher consumer prices for beef, chicken and pork, the top executive for Tyson Foods said.

Donnie Smith, president and CEO of Tyson, was the speaker at USDA’s Outlook Forum luncheon which focused on the livestock and poultry sectors.

Packers such as Tyson are moving less volume of pork and beef right now, but dollar sales are up overall because of price inflation, Smith said.

“All I am trying to say by that price inflation comment is the interest is there,” Smith said in an interview with reporters. “If people had the money, they would spend it on meat. The only reason they aren’t buying meat is they can’t afford it.”

Perspectives on the per capita decline tend to focus on notions that people are shifting away from meats. Smith said it was wrong to equate the per-capita decline with waning consumer interest because of criticism of the meat industry.

Consumption is being driven by producer profitability, which has struggled with volatility.

“People want meat,” he said. “They want meat in their diet and I don’t blame them. I do too. But it’s getting pretty expensive. We’re concerned there are thresholds, and it depends on disposable income, where demand kind of tops out.”

He added, “Per-capita consumption, I think, will drop for the next two years. The current trend we have, I don’t see it changing for the next two years.”

Smith’s comments paralleled statements in USDA’s Livestock Outlook report, which said that consumption of red meat and poul try would drop roughly 6 pounds per capita in 2012. The average American will consume about 198 pounds of meat, the Outlook report stated.

Citing gas prices, Smith said a $3.75 a gallon gas price tends seems to be a trigger point that changes consumer buying decisions.

USDA’s forecasts of a 14.27 billion-bushel corn crop doesn’t mean Tyson will prepare to ramp up protein production. Smith said he believes it is too early to know a solid number on corn production or whether corn prices will decline. Smith was somewhat dismissive of USDA’s forecast. He couldn’t say whether such a boost of corn production would lead to more meat production.

“If there is 94 million acres, if there is 164 (bpa) yield—Ha!, if it wasn’t dry in Iowa, I would feel a lot better,” Smith said. “I have no way of knowing how an entire industry is going to respond.”

He later added, “It’s way too early to be talking about 14.2 (billion bushels) corn.”

After decades of U.S. percapita consumption of protein products trending up, the trend began to dip and stagnate for meats about five years ago. Smith said there is a paradigm shift in proteins. Even though percapita consumption is declining, demand is growing.

“The prices of meat are increasing faster than the price of inflation,” Smith said.

Smith highlighted the volume of corn needed to produce 100 pounds of chicken, pork and beef. On chicken alone, about 65 percent of the cost of producing market-weight chickens is feed costs. Then he noted how the trendline price of corn has taken off in the past six years and those higher prices have pressured the industry. Smith pegged this to the Renewable Fuels Standard and use of corn for ethanol.

“I have absolutely no bone to pick with the corn farmer,” Smith said, “and I am glad that they can sell $8 corn off the turn and make a bunch of money. But I’m going to tell you, it puts a world of hurt on somebody who is trying to turn that corn into meat.”

Smith said the volatility in the corn and grain markets overall have put a major dent in the poultry business. Companies representing 28 percent of production have filed for bankruptcy, been sold or closed.

“That is a structural shift in the industry,” he said.

The change in producer profitability is affecting livestock and poultry production in the U.S. and the amount of meat available to consumers.

While per-capita consumption is expected to decline in the U.S., Smith said the outlook for protein exports remains strong. Smith cited the weak dollar, and comments from the Federal Reserve that interest rates are expected to remain unchanged through 2014.

“We should have a favorable environment for exports and that’s good for the economy,” he said.

Chicken is the dominant protein in the U.S. and Smith sees the same growth in poultry sales globally. With that, Tyson has been expanding its operations internationally.

“We think there is going to be a growing demand for chicken around the world and we are going to be part of that growth,” he said.

In looking at beef, Smith said he believed Tyson would have adequate supplies this year, given that the graded-beef slaughter would consist of the 2010 calf crop. However, Smith said lower cow numbers suggest likely lower future calf crops.

“We’re watching heifer retention pretty closely now to see what impact that will have,” Smith said. The smaller cow herd would translate into fewer slaughter cattle in 2014, not 2012, he added. — Chris Clayton, DTN