Higher feed costs could trigger wide-reaching shift in consumers’ meat purchases

A surge in feed grain prices has stripped many livestock farmers of profit and set off a chain of events that threatens to drive up world meat prices in 2013.

The global economic downturn has made it difficult for farmers to pass on rising costs to cash-strapped consumers, and they have sought to scale back production plans in the face of mounting losses.

In the pork industry, this has meant slaughtering breeding sows, which in the short term can actually increase meat supplies, with the eventual decline in production not felt until 2013.

“If you take a breeding pig out of the system now it takes around nine months before there is any impact on the level of slaughtering because of the lifespan of a pig,” said Stephen Howarth, analyst for Britain’s AHDB-BPEX.

Retail prices for pork and beef in the United States have remained stable so far, but analysts said retailers would eventually be forced to pass on rising costs to consumers when supplies get tighter.

“Because there is no immediate drop-off in production, you don’t tend to get much of a price reaction in the short term. It can feed through into a bigger price reaction further down the line,” he added.

Jim Robb, director of the Livestock Information Centre in Denver, Colorado, said as prices rise shoppers could switch from more expensive to cheaper meats.

“For 2013, we may see a little bit more substitution by consumers away from beef and towards chicken and pork because we’ll see record-high price levels across most categories, especially for beef,” he said.

One forecast pegs 2013 U.S. beef production at 24.8 billion pounds, the lowest since 2005, and at 23.6 billion for 2014, its lowest since 1993.

Livestock economist Chris Hurt of the University of Purdue said the U.S. hog industry should begin to see a reduction in pork supply about May or June next year.

Many U.S. feedlots have been operating at losses for several months. Hurt said he expected the numbers of cattle leaving feedlots to taper off noticeably in January or February next year.

Expensive feed

The price of corn hit a record high of just over $8.43 a bushel in August, and while it has since fallen about a dollar, that’s not nearly enough for hard-pressed livestock producers.

Tim Koch, meat analyst at German agricultural markets consultancy AMI said a reduction in Germany’s pig herd and high animal feed costs would make 2013 a “painful time for farmers and consumers alike.”

Howarth predicted European Union pork production will decline by at least two per cent in 2013, and exports for Canada will also contract.

“The big unknown is China, which accounts for about half the global market for pig meat,” he said. “Any drop-off in production will mean an increase in demand for imports, but there are conflicting stories coming out of China.”

If declines in pork and beef production lead to higher prices, it might be an opportunity for poultry producers, who can quickly ramp up production.

“In other words, look out. Especially in late 2013, chicken substituting for pork and beef is going to be pretty predominant,” said Purdue University’s Hurt.

One major meat sector has managed to avoid rising feed costs and looks set for expansion: lamb.

“Most sheep in the U.K. and the main global producers are grass fed. It (rising animal feed costs) will make lamb a bit more competitive relative to other meats,” Howarth said.

“Where it has been very expensive relative to other meats, it may be a bit less so,” he added, noting most major producers planned to expand production in the next year or so.

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