Sharp increases in beef prices could make consumers ‘trade down’ to chicken and other proteins this summer, according to a new report from CoBank.
“If consumers’ real incomes continue to decline along with higher meat prices, we may finally see a significant change in consumer’s willingness to pay for red meat. If that turns out to be the case, the U.S. broiler industry may yet again be well positioned for modest growth and strong margins,” the report said.
Meat retail grows despite rising prices
In retail, the meat department saw significant growth throughout the COVID-19 global pandemic, despite recent price increases.
For chicken, both chicken consumption and price grew to record levels in 2021. Beef also saw a 1.4% increase in consumption from 2019 to 2021, even with a 20% rise in retail prices during the same time.
“In 2021 the market for proteins witnessed a new type of consumer, one who is less sensitive to higher retail meat prices and more interested in at-home food preparation,” CoBank said, noting that access to high-quality meat has been critical in retaining the consumer dollar at retail.
Supply shortages threaten beef and poultry inventory
Several factors drive current price increases in the beef industry. The impact of the temporary closure of beef plants during COVID-19 led to supply chain backups and product shortages that are still being felt today.
In addition, severe drought conditions in the U.S. have led to a beef cattle industry in decline, according to the report.
The broiler industry could be in a unique position to fill the hole left by beef, however the United States Department of Agriculture (USDA) expects only a 0.7% growth in chicken production in 2022 due to uncertainties about the future of foodservice, high feed costs, ongoing chicken survivability and the current outbreak of highly pathogenic avian influenza (HPAI) in the U.S.
“Animal feed prices have skyrocketed from where they sat in 2020 as global grain balance sheets tightened amid smaller global harvests in 2021 and now by the Russian invasion of Ukraine. The invasion shocked grain markets and sent grain and oilseed crop prices up 20%-30% in a matter of days,” CoBank said.
What will consumer do about rising prices?
So far, consumers have remained willing to splurge on higher priced premium meat products like beef, but that may change as prices continue to rise.
“As U.S. consumers notice their dollar does not go as far as it used to, they may “trade down” in their protein purchases, favoring chicken more often than was the case in 2021. However, we do not anticipate that the trade-off will be as severe as what happened in 2006- 15 when chicken rapidly became a major presence on quick-service restaurant menus,” explained the report.
