The end of the COVID-19 pandemic could be in sight thanks to the arrival and increasingly widespread use of vaccines against the disease. That could mean a return to normalcy for a poultry industry that was rocked by the disruptions caused by the disease.
2021: The year of vaccination
At the end of 2020, COVID-19 vaccines began to receive approval from U.S. health authorities and see limited use. In the beginning of 2021, populations with the greatest need began to receive the vaccine. By the end of April 2021, most states will have opened vaccine eligibility up to all adults.
It is unknown when the country could reach so-called heard immunity. National and international public health authorities say the rate of vaccination needed to achieve that milestone could be anywhere from 60 to 90% of the U.S. population. Given the current rate of vaccination supplied by the Centers for Disease Control and Prevention, 90% of adults could be vaccinated by the end of July 2021.
There is also no certainty vaccination will completely end the pandemic. There are still threats posed by new virus variants and what will happen if, and when, society returns to pre-pandemic behaviors. Nevertheless, there is growing optimism that American life could return to something close to normal by the end of 2021 or in 2022.
Economic observers say the resumption of pre-pandemic behaviors will be a boost for poultry and should push the chicken industry to profitability in 2021. Some consumer habits centered around eating and dining at home formed during the pandemic may remain well into the future, too.
Foodservice demand returns
The biggest disruption to the chicken industry in 2020 came from the rapid disappearance of foodservice demand. When the pandemic began, many restaurants closed in-person dining, schools and offices emptied while live events and most travel were cancelled. This forced the chicken industry to rapidly re-orient its operations to serve surging demand from retail.
Christine McCracken, executive director for animal protein at Rabobank, said the pace at which normal demand returns will be determined by how soon people start to travel, whether they return to offices and schools as they did before the pandemic and whether family and holiday gatherings resume at the end of 2021.
“We are already seeing a strong recovery at foodservice that will only strengthen from here,” McCracken said. “This is great news especially for chicken as it is positioned really well coming out of the pandemic.”
Will Sawyer, lead animal protein economist at CoBank, said he predicts the vaccination push will deliver a significant boost to the travel and leisure sector this summer as the U.S. consumer – waiting over a year to vacation – hits the road. Given the difficulty associated with international travel, this will especially help domestic tourism and demand for poultry and other animal proteins.
A return in foodservice could be a negative for those producers who profited on the surge in retail demand. Mark Jordan, executive director of LEAP Market Analytics, said the COVID-19 period was a positive for chicken sold in supermarkets and by the quick-serve and fast casual restaurants that were best equipped to handle the pandemic. Since the middle of 2020, the demand for chicken has grown steadily and reached a level that is “exceptionally strong.” He said continued improvement from this point would be difficult.
A recovery in foodservice demand would likely challenge the integrated poultry industry to adjust its processing operations once again. Chris DuBois, senior vice president at IRI leading the data and analytics company’s protein practice, said the industry will need to rearrange processing that skewed heavily toward retail during the pandemic back to its previous level to meet renewed foodservice demand.
Economic impacts in 2021
As for poultry prices overall, Dr. Paul Aho, an economist with Poultry Perspective, said the price of chicken will likely rise as the year presses on. Between 2018 and 2020, the total supply of meat in the U.S. rose by 3.6 billion pounds. Between 2020 and 2022, the increase is expected to be 1 billion pounds. Now, meat supplies are relatively low while demand is rising which means prices should rise. High prices should be enough to more than offset higher than normal feed prices to create profitability for the industry, he said.
“I’m optimistic this is going to be a profitable year from one end to the other,” Aho said.
Sawyer said the imbalance between foodservice and retail demand meant industry profitability was skewed toward those serving retail in 2020. With demand normalizing in 2021, he expects industry profitability to balance out, too.
Furthermore, exports of chicken should be strong. Demand from China remains strong as that country deals with the fallout of its African swine fever crisis. Moreover, oil exporting nations, he said, tend to be chicken importing nations. Oil prices are currently high, stimulating those countries’ economies.
On the turkey front, the pandemic neither helped nor hurt the market for the bird. Jordan said turkey demand was struggling before the pandemic, as conditions were bad between 2017 and 2019, but the pandemic did not drive demand down any further. Whole turkey demand grew slightly during the pandemic, thanks to retail sales, but any gains were offset by a decline in turkey breast demand due to made-to-order sandwich shops suffering during the pandemic.
“A return to pre-COVID life would seemingly benefit … turkey breast demand,” Jordan said. “It’s difficult to imagine turkey breast demand getting any worse than we’ve already seen during this slump over the past four-plus years.”
McCracken said people are yearning for a return to normal life, which will likely boost holiday whole turkey demand in 2021 and beyond.
Looking ahead to 2022
Predicting the events of 2022 is difficult, given the challenges of the pandemic and the many unresolved issues associated with it. However, the general thought is the worst effects of COVID-19 on the economy and public life should subside. For the poultry industry, that should be a net benefit.
McCracken said Rabobank expects travel and tourism to normalize in 2022 and benefit from plenty of pent-up demand. That means those businesses relying heavily on travel and tourism likely won’t fully recover until 2022.
Both Aho and Sawyer said the strength of the recovery, and the profitability of the industry, may inspire integrators to boost production. Aho cautioned expansion of production is likely to drive down prices though.
“I expect poultry companies will begin to announce another round of new plant construction and capacity expansion,” Sawyer said. “The location, strategy and look of these plants, I suspect will look quite different than the plants we see today.”
One possible hazard for all is the potential for inflation. Jordan said U.S. consumers are already paying higher prices for fuel and energy and inflationary pressure is building in other household spending categories. If inflation continues to exert pressure on consumers, there’s a possibility of stricter spending on food and meat. But chicken and turkey should benefit if consumers decide to choose a cheaper protein option.
“Chicken demand is expected to ease back from being very good this year to being good, or maybe just okay, in 2022,” Jordan said. “Turkey demand is expected to improve from being very weak this year to being weak, or maybe just underwhelming in 2022.”
Permanent behavioral changes
A year of social distancing with partial closure of restaurants will likely have long-term impacts on the way people eat and may permanently impact the way protein companies operate.
For poultry companies, there will be some post-pandemic assessments taken of product mix. McCraken said some companies suffered during the pandemic due to their heavy reliance on foodservice. In the future, they will need to decide what is the right balance between foodservice and retail products and if they can sustainably serve a single client or demand channel.
Integrators will also need to maintain spending on elevated worker protection and compensation plans established during the pandemic. Jordan said when the pandemic brought temporary chaos to the meat supply chain, protein companies absorbed the cost of social distancing measures, higher worker pay, elevated health benefits and sick leave to keep their production lines moving. Some of these temporary changes may be made permanent with the costs passed along to the consumer.
For society as a whole, it’s possible there will be a wholesale change in the attitude both employers and employees have about remote work. The pandemic closed many offices in urban centers and instead pushed workers out to suburban and exurban areas. This demonstrated that working from home is possible for many jobs and puts the necessity of a crowded office building into question going forward. Most workers will return to offices once the pandemic ends, but a significant minority will not.
DuBois said the reduction of the labor force working in urban offices will bring serious repercussions to both foodservice and retail demand. According to the U.S. Department of Labor’s Bureau of Labor Statistics, about 7% of the workforce worked at home in 2017. The agency is now estimating between 20 to 25% of the workforce will now work from home. This means about 33 and 35 million meal occasions daily will shift from company cafeterias and nearby restaurants to either dining at home or near the home, he said.
The other consumer phenomenon which should last is newfound confidence to cook at home. When out of the home eating options were limited and people spent more time at home, they became more confident in their ability to cook restaurant-quality meals and they found they could save money doing so. The growing confidence and enthusiasm surrounding cooking pushed consumers to buy more cuts of meat than they typically would. DuBois expects these behaviors will last and that food companies will need to adjust their outlook accordingly.
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