U. S. cattle and hog markets fell as much as the daily limit Oct. 10 amid signs that the global financial crisis has consumers shifting away from beef and pork in favour of lower-priced foods.
“It has been a combination of perception and reality. The perception has been that people will stop eating as much and now it has become a reality,” said Doug Harper, analyst at Brock Associates.
Beef and pork prices have fallen and may fall more, after setting multi-year highs earlier this year, a sign that consumption is declining, said Harper.
The selling spread to meat companies as well, with shares of Tyson Foods Inc. Smithfield Foods Inc. and Pilgrim’s Pride Corp. down.
Restaurants, which are important markets for beef and pork, are reporting a slowdown in business.
Brinker International, owner of the Chili’s Grill and Bar and On the Border chains, on Oct. 9 said first-quarter earnings will be sharply lower from a year ago due in part to a greater-than-expected drop in comparable sales.
At the Chicago Mercantile Exchange, cattle and hog futures fell to contract and six-month lows.
“The economy is entering a recessionary period and in a recession we have either demand destruction or you have price destruction,” said Jim Clarkson, livestock analyst at Chicago-based A&A Trading Inc.
“The unemployment rate, I believe, is going to rise to at least eight per cent. In turn that means the risk of prices going lower for live cattle is very high,” Clarkson said.
To add to the U. S. meat industry’s problems, the dollar has increased against foreign currencies, which could lessen the buying power of importers. Exports have been a key reason meat prices, particularly for pork, have been high this year.
“We are losing the export market and it’s getting more expensive for the markets we have left,” said Peter Adams, principal at PNM Trading.
While hog futures were pressured by the economic concerns, losses in some contracts were limited by their discount to cash prices.
“The hog situation is not nearly as bad because you already had the cash hogs break a long way. When people go out they are going to buy the cheaper meat,” said Clarkson.
But a possible slowdown in pork exports is a concern.
“The thing that saved us last year was exports, and if this recession is worldwide, which it appears to be, the gains we got in exports last year may not be there for next year,” he said.