The pandemic-triggered shutdowns resulted in a significant decline in processed meat demand from restaurants and food preparation services due to mandatory lockdowns and stay-at-home orders. While such a drop would typically hinder revenue, 2020 saw an increase in per capita disposable income, allowing consumers to afford better beef, pork, and poultry products. Despite a notable decline in consumer confidence, the industry’s distinctive product positioning facilitated essential purchases, offsetting the sales volume loss observed in various sectors.
Major Companies Market Share¹
2022-2023
In the post-pandemic landscape, both exporting and importing activities have surged, with notable growth in recent years. Remarkably, the industry maintains a trade surplus, where the value of exports surpasses that of imports. The appreciating value of the United States dollar has facilitated import operations over the past half-decade. Particularly, these imports originate from Canada and Australia, influenced by distinct trade agreements that exempt incoming products from substantial tariffs.
The red meat price surge can yield increased processor revenue, particularly during periods of reduced disposable income, might lead to decreased revenues due to weakened consumer demand.
Products & Services Segmentation¹
Correspondingly, elevated feed costs exert a negative influence on processor expenses, subsequently impacting revenue. Rising feed prices drive up raw animal input costs, thereby elevating processed meat prices for consumers. The pricing dynamics of red meat and feed, alongside per capita disposable income and meat consumption, persist as the primary external drivers shaping the industry’s trajectory.
Since January 2020, Personal Consumption Expenditures (PCE) for nondurables has trended up, from a recent low of $2,664B in April 2020, to a recent high of $3,845B in June 2022. Since May 2022, the expenditures have been relatively stagnant hovering around the $3,800B range².
Meat, Beef and Poultry Processing Industry Revenue
2015-2028
Personal Consumption Expenditures: Nondurable Goods²
2015-2028
Since June 2022, real disposable personal income per capita has been trending up, from a recent low of $44,902 in June 2022, to a recent high of $46,673 in May 2023. Since January 2023, the real disposable personal income per capita has been steady around $46,500².
Real Disposable Personal Income²
January 2019 - May 2023
Per capital meat consumption from 2017-2022 grew at an average rate of 0.3%. The per capita meat consumption in 2022 was 218.9 lbs. gross¹.
Exports Will Boost as Meat Consumption Overseas Increases
The United States witnesses a steady and ample meat demand, effectively matching the elevated and unwavering meat consumption rates. Addressing this augmented demand, spurred by heightened per capita disposable income, necessitates the replication of automated farming systems in emerging foreign markets or the importation of meat products. Notably, a diminishing value of the United States dollar, as gauged by the trade-weighted index (TWI), acts as an incentive for U.S. goods exportation, rendered more competitively priced on the global stage.
Per Capita Meat Consumption¹
January 2019 - May 2023
Revenue Will Boost as Corporate Consolidation Takes Course
Medium and large meat processing corporations are poised to further exert control over diverse supply chain segments through vertical integration. This strategic move aims to reduce production costs and elevate revenue streams. The fluctuating feed pricing mechanism directly influences meat pricing dynamics. Industry players will actively pursue enhanced production efficiency to optimize cost benefits, thereby mitigating revenue erosion. This objective could require securing long-term contracts or outmaneuvering fierce price-based contenders. The industry displays limited product line extensions, emphasizing that substantial revenue expansion hinges on mergers and acquisitions (M&A) endeavors and the augmentation of productive capacities within existing plant facilities.
Profits Will Benefit From a Drop in Feed Pricing
Feed constitutes the foremost input cost in animal farming, significantly impacting meat processing operations. Projected forecasts anticipate a decline in feed prices within the upcoming five-year span, thereby facilitating cost-efficient meat processing attributed to reduced procurement expenses. This projected scenario of sustained or augmented product demand amid escalating prices and declining input costs is expected to contribute to enhanced corporate profitability over the long term.
Regulation & Policy
Regulation in this industry is notably robust and displays a consistent trend. Federal oversight entails stringent product safety and quality inspections. The United States Department of Agriculture (USDA) stands as the authoritative enforcer of standards governing the quality and wholesomeness of domestically produced vegetables, meat, poultry, and eggs. These comprehensive inspections span all stages of the supply chain. Concurrently, the Food and Drug Administration (FDA) holds authority over the formulation and enforcement of regulations pertaining to product safety, animal health, and consumer information.
States possess the authority to establish distinct inspection and safety standards, provided these are more stringent than prevailing federal regulations. A substantial proportion, approximately half, of states have chosen to implement such rules. Processors are obligated to adhere to environmental protocols stipulated by both the Environmental Protection Agency (EPA) and state authorities. Numerous legislative Acts have catalyzed changes in the manner processing facilities manage animal food products and handle waste disposal, resulting in a comprehensive framework for operations.
Recent M&A Activity³
Sources: (1) IBISWorld, (2) Federal Reserve of St. Louis, (3) Pitchbook