Demand

     The price outlook to producers can be summarized as I have said before by observing "which falls faster, supply or demand".  It is clear that both are falling, nationally and domestically, and the price responses still seem to suggest demand is falling faster than supply but a slowing is beginning to take place.  There seems to be some traction developing and as everyone in this business knows, spring is the beginning of the annual reduction in supply as various biological factors begin working their way through the production complex and summer demand for certain cuts begins to increase, at least domestically.  We have experienced years when the season price pattern for spring does not develop so it is not a sure thing.

     There is little doubt that the biggest impact is connected to the global recession which should burst the truism that agriculture is "recession proof since people have to eat everyday".  There are a multitude of factors which make this recession especially hard hitting for meat producers.  They include the large increases in unemployment both in the United States and abroad which results in real, current income declines but also the "wealth effect" impacts of the huge and nearly unprecedented decline in net worth.  The wealth effect describes how losses in net worth result in economizing by consumers even if they have the same current household income and have little fear of unemployment.

     One of the things you can observe in the meat case is that there has been a flattening of prices between the best and most economical cuts of beef and pork.  Premium cuts of beef and pork are a huge bargain by historical standards.  I observed a whole boneless pork loin in a big box store selling for $12.00, less than the price of a single person eating one meal at a restaurant (other than fast food).  Similarly, buying a boneless beef loin and cutting your own steaks or allowing someone else in the chain to do it and buying only a single steak is very cheap by the standards of the last five years.  This matches the typical grocery survey data results which is emerging describing the strategies of consumers in this environment.  In general the trend is away from brands to private labels, couponing, eating a greater proportion of meals at home, choosing fast food when eating out and remixing the dinner plate at home to less expensive combinations of calories.

     There is little doubt that the situation will improve dramatically when the world economy rebounds since demand will return far faster than production can scale up.  It is almost certain that in the middle of a recession, most forecasters are more pessimissic regarding the date of recovery than actually winds up being the case.  The earliest forecasts of recovery are late summer to early winter.  Let's hope the rule holds true.  Unemployment however tends to lag recovery as recession restructured firms are reluctant to add workers until recovery is well underway.

     Thats the medium term.  The longer term suggests that meat is slowly being recast in what can be called the tobacco model.  More on that next time, since if it continues, there is a relatively predictable path for future costs, prices, taxes, demand and global consumption shifts.