Rising Prices Will Soon Reveal How Much Do Consumers Love Meat
“Retail meat prices will remain elevated throughout 2022,” Brian Earnest, lead animal protein economist with CoBank, says in a release. “The sharply higher costs for feed, energy and labor have yet to fully impact wholesale and retail meat prices, but that will soon change. 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.”
With combined cutout values of beef, pork and chicken climbing 22% year-over-year for the first quarter of 2022, consumers are all but certain to see higher prices in the meat case, CoBank says.
“Beef consumption has not yet declined in the face of higher prices. But as overall inflation takes a bite of consumers’ purchasing power, we may finally see a significant change in their willingness to pay for red meat,” Earnest says in a release.
If that turns out to be the case, he believes the U.S. broiler industry may be well positioned once again for modest growth and strong margins.
There’s no question the primary drivers of higher and more volatile meat prices are shifting consumer purchasing patterns and market uncertainties stemming from the pandemic. But Earnest says supply challenges have also played a role. The temporary closure of beef and pork plants in 2020 led to backups in fed cattle supplies that still remain in some places today.
The nation’s beef cattle inventory remains in decline, due in part to the ongoing drought conditions in the Western U.S. and modest feeder calf prices, CoBank reports. As well, the combined cow and replacement heifer inventory has dropped by 12% since 2017. In a similar fashion, the nation’s sow herd is contracting and is down nearly 6% over the past three years, primarily due to losses sustained in 2018-19. USDA is forecasting a 2% decline in U.S. beef and pork production in 2022.
“Price volatility across the animal protein sector has become a daily headache for procurement teams to manage. While prices started 2022 in post-holiday doldrums, wholesale values were still elevated compared with pre-pandemic levels. Volatility in wholesale markets remains an obstacle for promotional planning,” CoBank says in a release.
Increased volatility in spot markets and supply instability “handcuffed” retail marketing of proteins during the 2020 grilling season.
“Featuring activity rebounded substantially in 2021 as grocers sought to hold onto the sales they gained during the pandemic. For 2022, a flight to safety from higher meat prices may be to feature value items like ground beef, hot dogs and sausage items,” Earnest says in the report.
It is likely that retail meat departments’ focus will shift to profit margin over volume sales this year, as grilling season enters full swing. This means consumers will see increased creativity in the meat case, CoBank reports.
"Rather than vying for consumer dollars through aggressive price points, 'no price' features will be an attractive solution," Earnest says.