US meat industry shows resilience after Q1
Despite the COVID-19 crisis, 2021 shows positive signs for the US meat industry, according to the quarterly report issued by CoBank. The US economy continues to outperform expectations as stimulus funds are fueling robust consumer spending. Consensus forecasts point to 7% GDP growth for 2021, the fastest rate of expansion since 1984. Inflation is inevitable, however, as the 2020 price declines will widen year-over-year inflation over the next two quarters, and new upward price pressure should push headline inflation above 3%.
The transition to a less COVID-restricted world has begun. But for the economy and rural industries, there will be no going back to pre-COVID conditions. A transformed policy environment and awakened commodity markets are making way for a whole new operating environment, according to the new Quarterly report from CoBank's Knowledge Exchange.
So far, in the first three months of the year, the animal protein market has performed well. US chicken prices started 2021 on a high note, climbing over 20% in the first quarter. These prices offset the double-digit rate of feed cost inflation and brought spot margins well into positive territory. The counts of eggs set and chick placements are a leading indicator that chicken production will remain at current levels, so chicken prices continue to look strong through the summer. Expected increases in vacation and business travel this summer will boost food service sales, benefiting the chicken sector.
US beef demand has been incredibly strong in the first quarter despite the challenges in food service and the away-from-home dining sector. Strong demand and expectations for limited supply growth in the back half of 2021 have driven up cattle futures. The USDA expects beef production to decline by 3.5% in the second half of 2021, which has helped lift cattle prices nearly 15% above year-ago levels. Packer margins remain elevated, but producers are expected to realize better margins in the second half of 2021.
Strong first-quarter demand for pork, coupled with indications of limited supply growth, has lifted hog sector profitability to levels not seen in many years. Concerns over feed and other cost inflation have taken a back seat to optimism for another year of strong pork exports and robust domestic demand as US consumer behavior slowly returns to normal. China has slowed its hog herd rebuilding due to increased ASF cases this winter, helping drive the positive outlook for the remainder of the year.
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