According to “Chickens, Cows, and Pigs … Oh My!”, a new report from Rabobank, “2015 was a momentous year for U.S. animal protein, as it showed the largest increase in U.S. meat consumption since the food scares of the 1970s. Not only was last year noteworthy for the near-5% increase in per capita consumption, but also due to the fact that it was achieved without the help of beef, consumption of which was flat.”
- Enjoy consumers’ return to meat. According to Rabobank, “2015 saw the largest increase in U.S. capita meat consumption in 40 years,” thanks to more affordable meat and changing dietary preferences. Paleo diet, anyone?
- Prepare for a “very different” profit environment in 2018 if meat prices slide as projected. With feed costs falling thanks to low corn, soybean, and wheat prices, meat prices will also decrease. Rabobank expects U.S. retail meat prices to drop 14% by 2018, bringing protein prices back to where they were in 2012. The good news is that feed costs will be considerably lower than in 2012.
- Keep an eye on Mexico. Our neighbor to the south is a major source of demand for U.S. pork, but now Mexican producers themselves are investing the hog business in a big way. “Mexican pork producers have experienced very strong margins in light of the favorable prices and, by our estimates, have responded by increasing the domestic breeding herd by nearly 15% in the last two years, which will begin to lift domestic pork production and put pressure on imports,” the report said.
- If you’re thinking of selling your livestock operation, do it now.”While we don’t foresee margins falling to the lows of 2008 and 2009 as prices decline through 2018, any producer considering a possible sale or divestiture should move quickly, as the outlook for margins and valuation multiples isn’t moving in their favor, and it will likely be more than a few years before industry conditions return to current levels,” the report said.
- Consider what consumers want. How can your operation can adjust to serve those shoppers so your operation can maintain or grow profitability as overall meat prices soften? “Companies that can best understand what millennials want and are willing to pay a premium for will have tapped into a consumer base that isn’t going away, but will continue to grow in its spending power and influence on the entire U.S. food industry,” the report said. “Whether meat companies approach this through more specialized or niche production practices, moving up or down the supply chain, or targeting flavor profiles from foreign markets, each of these strategies should help to insulate their product’s price from the swings, and in our view, decline in meat prices in the coming years.”