Attendees at the Annual Meet Conference heard from three expert panelists March 7 as they held a “deep dive” into the livestock and meat market and landscape.
Steve Meyer, economist, Partners for Production Agriculture; CattleFax CEO Randy Blach; and Paul Aho, economist and consultant, Poultry Perspective, took the stage to offer a better understanding of market conditions and how they will affect the protein businesses in the coming year.
Q: Are there worries about African swine fever in the U.S. wild hog population, and would this present a risk to the domestic pig herd?
A: There are worries, as the U.S. has a huge population of feral pigs. If the virus got into those animals, there would be some risk, even though most commercial production is in facilities that are easily separable from wild pig populations. That’s why it’s important to stop this virus at the port, at the airport, at the border. Although ASF is not easily transmissible, it’s “just absolutely deadly when it comes.” The U.S. government has put more resources into disease interdiction at U.S. ports and airports.
Q: Could you share your perspective on organic corn and soybeans supply and demand? And what does the market forecast situation look like?
A: Last year, the Mexican government stated they would no longer import corn if it wasn’t GMO free. It had to backpedal very quickly. Mexico relies on U.S. grain production for its livestock industry and couldn’t sustain trying to separate GMO corn out of the supply.
The acreage of organic corn and soybeans is still very small. The panel said there are higher value uses for organic grains, such as feeding dairy cattle or poultry, where the conversion is better.
There is a small part of the consumer segment willing to pay for organic, but the economic signal has to be there to provide more organic grains and more organic animal protein. It is a niche market.
The industry has done a better job over the last 15-20 years getting away from commodity production and focusing more on brand niches, quality and brand promises. Those have seen tremendous success across the protein industry, and the beef industry has been a major beneficiary.
Q: In regard to the extreme growth of USDA Prime and Choice and the economic signal that consumers are willing to pay more, there is a need for a more affordable option such as Select. Do you ever see a day when more Select cuts will be produced?
A: The panel stated that in the 1990s up until about 2000, 35-40 percent of all U.S. beef produced was Select or lower. One out of every four steaks was a poor eating experience. There was no quality or consistency.
Now, the industry is producing steak that actually has the butter in it, the marbling, as well as other items – not just rib and loin. The market is going to go where the signal is, with 2021 and 2022 being the largest beef production years in industry history.
Part of the reason is there was a backup supply of cattle as the U.S. came through COVID-19. Those cattle fed longer and had a bit more age on them, which was part of the reason the Prime and Choice numbers got as strong as they did. That will moderate in the next few years as supply decreases.
Growth and imports of product such as whole muscle cuts out of Mexico are increasing. This will help fills some of those voids as U.S. supply decreases. The beef industry moves to where the market signal tells it to move.
Poultry also will help fill the void. The panel stated 50 percent of the meat consumption in the U.S. is poultry, with beef at 30 percent, pork at 25 percent and other proteins such as lamb and buffalo at less than one pound per capita.
The panel also stated it is important to look at per capita consumption and per capita market share spending. While consumption of beef has decreased, there has been a 7 percent increase in market share of spending.
Q: On the topic of hog slaughter, it wasn’t that long ago the U.S. was facing a 5 percent increase in harvest capacity and the need for exports to grow to 30 percent. Now, there seems to be insufficient capacity. What’s changed?
A: In 2017, there was a dramatic increase in slaughter capacity, with two new, modern plants opening on the same day. Since then, some plants have closed, and the industry also had to deal with a new USDA rule for inspections, which slowed chain speeds at plants.
No industry can afford to have excess capacity for long. It’s going to rationalize quickly when there aren’t enough animals. Then, it takes a while to build up capacity.
Most of the growth in the pork industry has been in vertically integrated systems that will build a plant and build production to go with it at the same time. The tension between harvest capacity and production will continue.
Pork can move faster than beef, which has a longer cycle. The problem on the beef side is that by the time a decision is made to add more packing plants, the cycle is down and there aren’t enough cattle. The panel predicted no significant growth in the pork sector until it knows another plant is coming.
Labor challenges also add to the tension, which the panel stated they didn’t see ending anytime soon.
Q: Can you comment on the number of plants slated to come online as the beef industry continues to contract?
A: Several plants are set to come online, but most are not the same size and scale of older plants that can handle 4,000-5,000 head per day. Most of the new plants are designed for 500-2,000 head a day. There has been significant capital improvements in many of the plants in the U.S. over the last several years. Most of the new plants are slated to come online in 2025-26, which will be when the industry is facing its tightest supply. It will be pretty lean for a few years.
Q: How do you see changes in labor markets, such as skill shortages and immigration policies, affecting the meat industry, particularly in terms of wages and productivity? What implications does this have for the market outlook?
A: Labor is a problem for the industry as a whole. Historically, there has been a lot of immigrant labor. When immigration tightened down, that caused a problem. Pay in processing plants is much higher now than a few years ago.
In the poultry industry, when labor was scarce, it couldn’t debone a chicken breast. The backlog for mechanical deboning equipment is five years. The change from labor to mechanization can’t happen quickly because there are just a few companies that manufacture the necessary equipment.
The panel forecasted a shift toward less labor, using machines to eliminate jobs. They stated that there remain hundreds of thousands of jobs and maybe the industry can make those better jobs. They also stated there needs to be fundamental changes in immigration policy. Seasonal visas are issued for agricultural workers, but the packing industry and hog farms need workers year-round.
Q: What would happen to global chicken markets if HVAI were to hit Brazil?
A: Brazil is worried because the avian flu is in Uraguay, northwestern Argentina and Peru. It’s all around Brazil. However, like the U.S., Brazil has contract farms that are spread out. The virus could be tamped down pretty quickly, and the Brazilians are motivated to eliminate it if comes into the country. Brazil is the No. 1 poultry exporter, although it produces less chicken than the U.S. The percentage is higher, at about 20-25 percent.
Q: How do you anticipate changes in financial markets, such as access to capital and investor sentiment, affecting the meat industry, particularly in terms of mergers, acquisitions and market consolidation?
A: There will be more consolidation, not only at the production level but all the way through the industry. A number of one- or two-feed yard type operations will likely be consolidated into larger operations.
This has occurred at the packing level, at the distribution level and the retail food service level. Those trends likely will continue over the next five years. However, there may be some legal restrictions coming at the packing level.
Q: Discuss the impact of African swine fever and how production is recovering specific to Asia (China)?
A: Everyone scratches their head when the Chinese government numbers come out. It is difficult to get solid data out of China. Their herd is recovering some, but they’ve used a lot of market gilts to rebuild the sow herd instead of specific crossbred maternal line gilts, so the productivity is not as high.
Demand in China has been awful, especially with the COVID-19 lockdown. It’s really hard to get a handle on what is happening in China, as well as in Vietnam or the Philippines. ASF is hard to stop. A couple of cases popped up in Europe in the last month or so. The interdiction situation is very important.
The panel noted that no one should take for granted the amount of information and analysis data that is available in the U.S. Europe has a lot of data, but it comes out six months or a year in arrears. A big reason the meat industries in the U.S. have been able to grow as they have is because of access to better data and better information on which to base decisions.
Q: Can you speak to the role of environmental and sustainability concerns in shaping the market outlook for the meat industry, particularly in terms of resource use and emissions and how it may impact supply and demand dynamics?
A: The progress made in the genetics of grain and the genetics of animals has improved sustainability. The industries can look at ways to use less water and better treat water, along with producing more renewable energy and reducing carbon.
Everybody has a different opinion on climate change, but the industry wants to do right by the animal and the land. It’s just a matter of being able to measure what data points are important. There’s a lot of chatter, but nobody really knows what, specifically, needs to be measured.
People are having a hard time really zeroing in on it. But there is a tremendous amount of conversation on the topic. When it becomes more clear, carbon markets will become better established over time, which will create opportunities for a number of land owners.
There are pressures on the environmental sustainability side. The pork industry is investing money to help producers monitor sustainability and tell their story as to what’s happening on their farms – making sure they’re efficient and using byproducts as much as possible. There are valuable resources in the waste nutrients produced on hog farms. It’s going to be table stakes in the future; the industry will have to answer those questions.
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