Just like every year, the meat industry faces a series of challenges. Knowing the professionals in this business, we will overcome these obstacles to continue to service our consumer base with superior quality products. Consumers are challenged because of the reduction in buying power.

Due to drought conditions of 2022, cattle farmers dramatically reduced their beef herd to a level not seen since 1951. With Proposition 12 and similar bills going into effect in other states, we are feeling the constraints of animal welfare and animal confinement rules that make it more difficult to have universal practices throughout the 50 states. With HPAI impacting poultry, livestock and humans, this situation continues to evolve. The restaurant industry has rebounded and accounts for more than 50% of food dollars spent.

Consumers are increasingly concerned about health and well-being, focusing on healthier ingredients and options. The fear of climate change is bringing sustainability to the top as one of the many issues consumers are focused on. Along with dramatic global inflation, demand for value-added products has increased dramatically. With the difficulties consumers are experiencing, it's reasonable to see a possible change in administrations, which may affect our regulatory environment. We will explore this and many other trends in our business that will challenge us in 2024 and 2025.

Outlook for the ongoing tight beef supply situation

The 2025 outlook for beef production is forecast at 25.12 billion pounds, according to the USDA’s Economic Research Service. Next year will mark the third consecutive year of lower production. It will be the lowest since 2015 when the sector began to rebuild after the 2009-13 drought. Beef processors in the US face the likelihood of continued sizable losses in the second half of 2024. Springdale, Ark.-based Tyson Foods Inc., the largest processor of fed beef, projects a $100 million to $400 million operating loss in its beef segment in fiscal 2024, which ends Sept. 30, 2024. It reported a $241 million loss in its first six months. Such losses will continue into 2025, as USDA forecasts beef production next year will be down 5.5% for 2024 and that live cattle prices will increase by 2.4%. They are set to average $183.50 per cwt this year, versus $175.54 per cwt last year. These changes reflect tighter cattle and beef supplies as the cattle herd continues to contract.

Pressure on beef packers will be heightened by the fact that there are still no signs of heifer retention or beef cow herd rebuilding. This suggests that overall cattle numbers on Jan. 1 next year will be lower than on Jan. 1 this year, when the total was 87.2 million head. This was the lowest total since 1951. Companies building new processing plants question if there are sufficient cattle supplies to run their new plants economically. The relatively strong pace of beef cow slaughter, along with relatively large placements of heifers in feedlots in 2023 and in 2024, may yield a smaller year-over-year calf crop in 2025, tightening future cattle supplies, ERS said. Total beef disappearance in 2025, measured on a per-capita retail weight basis, is expected to decline 5% from 58.1 pounds this year to 55.6 pounds. As production declines next year on the largest decline in cattle slaughter since 2013-14, it will be partially offset by record beef imports and eight-year-low exports, ERS said. Frozen beef was 407,127 in July, down about 0.2% from June and 1% lower than a year ago.

Chicken production increase

Broiler production next year is expected to increase by 1.6% from this year’s forecast of 46.9 billion pounds, to 47.6 billion pounds. The modest expected increase in broiler production is based on firm demand and favorable feed prices, according to ERS. Producers are already reporting improved earnings reflecting the change in supply and demand. Total frozen poultry in freezers was 1.22 billion pounds, up 2% from June but 5% lower than July 2023. Chicken in freezers rose 2% in July to 757 million pounds, led by double-digit expansion of stocks of legs, leg quarters and hens/mature chickens. Compared to July 2023, total chicken in cold storage was down 10%. The Russian embargo continues to be an issue with leg meat markets.

Pork output uptick

Pork production next year is forecast to increase by 1.2%, to 28.4 billion pounds from 28.1 billion pounds this year. The higher pork production forecast derives from growth in pigs per litter that will more than offset fewer expected farrowing’s, ERS said. Supplies of frozen pork declined 5% in July, according to monthly cold storage data from the USDA’s National Agricultural Statistics Service . Pork in freezers on July 31 totaled 450.7 million pounds, 4% lower than the same date a year earlier. The July pork belly supply of 42.7 million pounds represented a drop of 30% from June and 17% from a year ago.

Turkey production dropping

Turkey production is expected to drop in 2024 and 2025. Turkey production in June 2024 totaled 408.8 million pounds, a decrease of 17.2% from June 2023. Impacted by the loss of 545,600 birds to Highly Pathogenic Avian Influenza (HPAI) in Minnesota and Iowa. Based on a second month of very low levels of turkey eggs in incubators, projected fourth-quarter production was adjusted down, with 2024 production projected at 5,115 million pounds (a decrease of 6.3% from 2023). Projected turkey production in 2025 was also adjusted down, reflecting these recent trends. Frozen turkey rose 3% month–on-month to 460 million pounds, a jump of 5% year-on-year.

The impact of Prop 12

In a May 2024 ruling, the US Supreme Court upheld the California law (Proposition 12) banning sales of pork products from producers that do not comply with livestock housing requirements set by California voters in a 2018 ballot initiative.

The Supreme Court ruling means Prop 12 (and Question 3 in Massachusetts) are finally going into effect. It will be challenging for producers to increase the space required for animals and go through the certification process. It will mean increased costs for producers in a market that's economically challenged, limiting the ability to increase prices. This may also force some producers to abandon their production in certain states. Smithfield’s closure, and Cargill sale of their California facility, may be related to perceived difficulties being profitable under Prop 12. Other states like Massachusetts have enacted similar laws, but they will have a much less significant effect than California.

Meat and poultry consumers are seeking value

According to the "US Grocery Shopper Trends 2024: Finding Value" report from FMI -- The Food Industry Association, consumers have changed their approach to grocery shopping based on their needs:

• 83% of consumers report they have moderated grocery spending
• 79% of shoppers say their top concern is finding a good value
• 63% of shoppers continue to look for deals by adjusting the stores they visit and products they purchase.

"While we understand shoppers' concerns about the price of food on store shelves, our US Grocery Shopper Sentiment Index shows consumers appreciate the ability to find value in their grocery shopping and continue to enjoy grocery shopping, a trend we expect to continue as food inflation cools," said FMI President and CEO Leslie G. Sarasin. More than four in 10 shoppers with household incomes under $75,000 report they buy fewer food items and more private-label brands. Consumers are augmenting their grocery shopping habits as they work to control their spending levels heading into the fall, according FMI research.

“Shoppers report that one of the few parts of their household budgets they can control is their grocery spending and that through taking advantage of deals, promotions or shopping around, they continue to find value,” Sarasin said.

FMI also pointed to USDA data that found inflation for most food categories fell below historical averages in the first half of 2024. The USDA also projects food-at-home prices will increase by only 1% this year, while next year’s forecast dips below this benchmark significantly to a 0.7% anticipated increase for 2025.

“With shoppers including meat in nearly 87% of home-cooked meals every week, they are looking to meat to make occasions special, the opportunities to provide great choice, taste, and value continue to grow,” said Rick Stein, vice president of fresh meat for FMI.

HPAI threats to the protein industry

Thirteen human cases of H5N1 virus infection have been reported in the US since April 2024, according to an Aug. 16, 2024, update from the Centers for Disease Control and Prevention. Four of these cases were associated with exposure to sick dairy cows, and nine were associated with exposure to H5N1 virus-infected poultry.

USDA reported that 191 dairy cow herds in 13 U.S. states have confirmed cases of H5N1, and this number continues to grow. Since April 2024, there have been H5N1 detections in 35 commercial flocks and 21 backyard flocks, for a total of 18.68 million birds affected H5N1 cases in dairy herds and poultry flocks continues to grow, according to USDA. The CDC’s assessment is that the immediate risk to the public from H5N1 remains low. CDC said it continues to work with Michigan and Colorado to conduct H5N1 seroprevalence investigations among dairy farmworkers with potential exposure to infected cattle. Specimens from both states will be tested by CDC for the presence of neutralizing antibodies to these viruses, a sign of prior infection.

Foodservice sales

US foodservice sales are expected to rise 5.4% this year, to more than $1.1 trillion, according to a National Restaurant Association report. That’s up from more than $1 trillion in 2023 and $864 billion in 2019, the year before the pandemic. The COVID-19 pandemic devastated the restaurant industry, but sales are now far higher than before they started — and climbing. Despite big financial pressures on restaurateurs, such as tech investments and the cost of labor and food, technology is helping in automating order-and-delivery systems.

The rise of virtual kitchens and ghost restaurants, fueled by the growth of online food delivery services, is transforming the traditional restaurant model. These establishments operate without a physical storefront, focusing solely on fulfilling orders through delivery apps. This trend is reshaping the industry's dynamics, presenting challenges and opportunities for restaurateurs

Doordash captured 55% of US food delivery sales. Doordash also saw its revenue rise by about 226% in 2020, blowing past its competitors. Uber Eats and Grubhub are fighting for second place

Summary

• Because of high interest rates and inflation, consumers’ spending power is under significant pressure. They will continue to look for value both in their retail selections and in the foodservice industry.
• As the restaurant industry regains its footing, volume has shifted to drive-throughs, home delivery and more convenience opportunities versus white tablecloth and super premium offerings.
• Consumers learned to cook during COVID and are cooking more meals at home.
• Beef supplies will continue to be tight throughout 2025.
• Because chicken production can be increased much faster it will take some of the slack up from beef.
• Consumers continue to explore boulder flavors and ethnic offerings.
• Avian flu will continue to be an issue as it mutates and takes other forms

Dan Emery has 25 years experience in the food industry, including 15 as vice president of marketing at Pilgrim's Pride. He is directing Meaningful Solutions, a company founded to assist clients in solving problems.

www.provisoneronline.com   |   october 2024