Demand

Dr. Steve Meyer - Protien and Consumer Markets Outlook


Protien and Consumer Markets Outlook - Dr. Steve Meyer, Vice President, Pork Analysis, EMI Analytics, from the 2017 World Pork Expo, June 7 - 9, 2017, Des Moines, IA, USA.

SwineCast 0691, Feed Prices Impact Meat Demand

Download mp3SwineCast 0691 Show Notes:

Tastes and Preferences

     We usually think about demand in the two dimensional way that we are restricted to visualizing it in with a graph.  That is, the amount demanded is a function of price.  In actuality there are several other factors which determine demand that are embedded in those graphs but not visualized.  For instance, we know that the level of income influences demand as does the availability and price of substitutes and something called tastes and preferences.  For instance, if you hate carrots, lowering the price is not likely to induce more quantity demanded, though we might show the demand curve for carrots for a group (like people in the U.S.) as a function of the price.

The Crystal Ball is Opaque

     Unfortunately, we are at a time not only in the meat industry but also in the general U.S. and world economy when what little anyone had to make a forecast for the future has largely disappeared into an opaque soup of uncertainty.  There is little doubt that demand for meat, both in the United States and worldwide, is tied to among other things, per-capita income and a behavioral variable related to perceived and actual wealth (although there is some controvery about the wealth effect).  Both are down with rising unemployment and plummeting asset values. 

U.S. Pork Exports Are Setting Up for a Tough Time in 2009 but Cross Your Fingers

     We are facing the first year-over-year decline in net exports since the U.S. industry became a net exporter in the mid 1990s.  Even with the potential prospect of fewer total pigs slaughtered in the U.S. in 2009, due to a potential decline in both U.S. production and imports of weaned pigs and finished animals from Canada, 2009 seems to be setting up to be a very tough year.  Here are the reasons for caution and why the spring futures prices may fall to meet the slogging cash prices.

     First, we now know that all of the major countries which are key importers of U.S. pork are facing substantial declines in GDP, declining land and home values, increased unemployment and in one case, the potential descent into political chaos. 

FED action and the Demand for Pork

     As the US and global recession deepens, the monetary authorities in the UK, the EU and the US are driving interest rates to record low levels.  Today the FED cut the Federal Funds rate, the overnight lending rate to banks, to a range of zero to 0.25 percent which is the lowest rate on record.  The action is an effort to make holding cash by banks so disadvantageous that they are tempted to begin lending in order to earn a return.  The action is meant to increase the money supply, an action which is deemed safe now since its primary danger (inflation) appears as no immediate threat due to slumping demand and rapidly falling prices for everything from housing to gasoline. 

The Tip of the Iceberg

     I was hanging around some beef guys last week and I have to say, it was a great time.  The people involved in animal production in this country (and around the world that I have traveled) are some of the most genuine, thoughtful, fun-loving and creative human beings I have ever met.  A lot of them are suffering now of course both financially and psychically as they face the daunting uncertainty of low prices and record input costs.

     One of the guys I was talking to reacted genuinely surprised and intrigued when I shared with him the inevitability of his business shrinking over the next 10 years.  I told him he had to read a little bit wider than his trade magazines if he wanted to see the future more clearly. 

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