Despite some recent improvement, inflation and higher retail meat and poultry prices are weighing on consumer buying. A new report from CoBank relayed that meat prices are up roughly 30% from 2019 levels and up 6% year over year.

“Consumers may have seen moderate relief on beef prices at the store, but overall grocery prices are still rising, and smaller meat portions are a good way to keep the overall grocery bill in check,” said Brian Earnest, lead economist for animal protein at CoBank.

Additionally, expected supply constraints may prevent consumers from purchasing the same amount of meat as last year.

Earnest said red meat production has been running about 3% lower year over year since the beginning of February and is expected to drop further during the second half of 2023, concurrent with declining fed cattle availability and lower slaughter weights.

On the export side, demand has been relatively robust for U.S. animal protein despite global economic pressure, leading CoBank to remain optimistic about the 2023 export outlook.

Overall, Earnest said that much like the fourth quarter of 2022, red meat and poultry output exceeded expectations during the first quarter of 2023, which kept downward pressure on prices. As grilling season heats up, CoBank expects performance in the animal protein segment will strengthen in the months ahead.

Resistance to higher beef prices surfaces

Earnest reported that cattle markets ended the first quarter of 2023 in a strong position as fed cattle have traded above $165/cwt. and feeder cattle above $190/cwt.

While Earnest says consumer demand over the past three years “has been nothing short of incredible,” resistance to higher prices has begun to surface. Grilling season is just around the corner, but consumers will likely struggle to maintain past spending habits due to the economy, he added.

Meanwhile, stronger cattle prices and weaker cutout values are pressuring packer margins, leading to easing production. Cumulative cattle slaughter is down 2.6% year over year, and beef production is down 4.3% year over year, Earnest noted.

A large part of the cattle industry story over the past few years has been drought, and while conditions have been improving, Earnest said forage and hay supplies remain tight throughout many grazing areas of the country. This will remain a limiting factor to rebuilding the cattle herd.

Pork prices fail to gain momentum

In the hog sector, Earnest said harvest rates have been stronger than anticipated, with cumulative weekly federally inspected slaughter through the end of March about 3% larger year over year. As such, lean hog prices have not gained their normal seasonal momentum.

“To start out the year, national hog prices were at the top of the historical range for the period, at over $80/cwt., but have remained flat since then. We attribute this weakness to excess supply, but not to the point of stressing slaughter capacity.”

Given USDA’s estimate of a 2% year-over-year decline in total market hogs, Earnest said it appears the industry is drawing down future hog availability, which should help support prices later this year.

Domestic demand has fallen, and the pork cutout value was down about $20 year over year at the end March, CoBank reported.

“In any normal year producers would see this as acceptable, but not with the higher feed, labor, carrying costs, and other inflation that they are facing,” Earnest said.

As was expected, U.S. pork export performance was lower in 2022 as demand from China eroded due to COVID restrictions and the country’s domestic pork production rebounded. However, CoBank reported that the U.S. pork export picture appears to be improving as overall exports in January 2023 were up 9% year over year.

Weak chicken prices, elevated feed costs weigh on sector

Looking at the broiler sector, Earnest said elevated feed costs and weak chicken prices have weighed heavily on integrated broiler producers’ bottom lines. But, with some recent relief on feed costs and the shortest time to market, CoBank anticipates poultry will be the first to benefit.

Unfortunately, that is only half of the equation, Earnest noted. “Chicken markets grew sluggish during December and January while broiler production remained at record levels. As a result, breast meat in cold storage hit a record 245 million pounds, up 40% year over year to end February.”

While the inventory level appears excessive, Earnest said boneless/skinless breast meat prices have risen from below $1.00/lb. to around $1.40/lb.

This, he said, suggests that those low price points were plenty attractive to food service, warehouse stores, and food manufacturers that were seeking a “value” protein offering for consumers.

The report said export activity looks very encouraging for U.S. broiler meat as exports reached 630 million pounds during January, up 13% year over year and a record high for the month. The export strength is helping leg quarters maintain market strength while domestic dark meat support remains robust, as well.

“The bottom line is that while chicken producers had a difficult start to 2023, things are looking up for this sector from here as beef production comes under pressure, especially if food service concepts can position this segment well in the form of a new ‘chicken sandwich war.’”