A FOOD company executive, on a conference call last month, referred to a "gasoline cliff," explaining that demand for meat, poultry and dairy does weaken when gasoline prices "go over" $3.75/gal.
The effect is especially noticeable in the foodservice sector, he said, but when gas prices exceed $3.75, people begin scaling back spending in supermarkets, too, and switch from more-expensive to less-expensive food items.
However, there was increasing talk about a different cliff in the livestock and poultry markets last week -- the "fiscal cliff" that is drawing closer and becoming scarier to food producers.
The U.S. will arrive at this cliff on Jan. 1 -- a date that triggers automatic spending cuts and tax increases, including higher payroll taxes, unless Congress acts to avert the situation, which, as of last weekend, did not seem to be happening.
The cliff is the consequence of the Budget Control Act of 2011, a compromise in which Congress agreed to predetermine spending cuts on Dec. 31 this year if it cannot otherwise agree to $1.2 trillion in deficit reductions over the next 10 years.
The tax increases were not part of the act but, coincidentally to the deadline for the spending cuts, are scheduled to take place with the expiration of the Bush-era tax cuts at the end of this year, as well as with the implementation of certain changes in the tax code to begin raising revenues for health care reform, also at the end of this year.
All of this happening at the same time will come as "a significant shock" to the U.S. economy, according to John D. Anderson, deputy chief economist at the American Farm Bureau Federation.
Indeed, he noted that the Congressional Budget Office has predicted that the combination of spending cuts and tax increases will kick the U.S. economy over a cliff and into a recession.
"Markets are anticipatory," he said, and the looming crisis already is affecting the economic outlook.
This anticipation, Anderson said, is reflected in the most recent "Restaurant Performance Index," an indicator of current and future restaurant business -- and, therefore, current and future consumer sentiment -- that's compiled monthly by the National Restaurant Assn.
The October index slipped under 100 to its lowest level in 14 months.
Anderson said a reading under 100 indicates that restaurants are experiencing or expecting business contraction, and the October reading suggests that restaurant operators are decidedly pessimistic about the outlook for the economy, which would imply pessimism about the outlook for meat, poultry and dairy demand.
This anticipation, he said, also is reflected in the Institute for Supply Management's manufacturing index, an indicator of growth in manufacturing.
The November index slipped under 50 to its lowest level in more than three years and well below expectations, and Anderson said a reading under 50 indicates contraction in manufacturing activity.
Furthermore, the institute's measure of inventories dropped sharply.
Manufacturers are delaying hiring and filling orders and are not receiving new orders, said Bradley Holcomb, chair of the institute's manufacturing survey panel. Business is taking "any and all measures to reduce costs and risks" ahead of the cliff, he said.
If Congress fails to stop the U.S. from going over the cliff, the consequences for livestock and poultry producers and demand for meat, poultry and dairy could be difficult to reverse, according to Feedstuffs sources.
Demand already is fragile as consumers deal with record- to near-record-high prices in the meat and dairy cases, buying down, over and out of the protein categories, sources noted, and consumer confidence stumbled for months last year just from the threat of a fiscal crisis until Congress came up with the budget act. A real crisis will be far worse, they said.
Moreover, time is rapidly running out.
The cliff will be reached at the end of the year, but Congress is scheduled to adjourn on Dec. 21, meaning that any legislation to avert the fall needs to be written by Dec. 18 to give lawmakers time to consider and debate their positions.
The U.S. will be $16.394 trillion in debt by the end of this year. Without a resolution, higher taxes kick in Jan. 1, and the first round of spending cuts -- $110 billion worth -- begin on Jan. 2.
Also, to add to the crisis, funding for the U.S. government expires on March 27, 2013.
To be fair, some economists have said the cliff talk is a scare tactic, and it might be more appropriately called the "fiscal slope" because the spending cuts and tax increases will be gradual and the Obama Administration has some authority to delay both the spending cuts and tax increases. This would give Congress some breathing room to pull the country back from the cliff early next year.
Factiously, some observers have suggested that Congress could just let the country go over the cliff, and then -- with programs cut and taxes up -- lawmakers could gradually start to "fix" the situation by proposing new spending and tax reductions -- a kind of "start-over" scenario.
However, livestock and poultry producers have more to worry about than consumer demand in an environment of high costs and prices because, now, there's also the issue of consumer demand at the bottom of the cliff.
Against the backdrop, however, life does go on.
On Dec. 1, Del Frisco's Restaurant Group opened its newest steak house, Del Frisco's Double Eagle Steak House, in the former and now renovated Esquire Theater in Chicago, Ill. The multi-level, 24,000 sq. ft. restaurant is one of the largest in the city.