With discretionary spending diminishing due to the global recession, parts of the United States meat industry believe it should be targeting the cheaper end of the market.
People have to eat, a contact said this week, "but what are they eating?"
Apparently, they're eating chicken wings and hot dogs, as chicken wing prices were almost double this week what they were last year, and turkey wiener production was an all-time high, indicating the extent to which consumers have shifted down and around in the protein chain.
"Value has a new definition," the contact said: "Cheap."
This is illustrated in consumer spending. Influenced by recession, consumer spending declined 1.5 per cent in the fourth quarter last year, but consumer food spending decreased 4.4pc to, as a percent of total spending, an historic low at 13.1pc, according to Dr. Tom Elam, an agriculture and food economist at Farm Econ LLC in Carmel, Indiana.
Consumer food spending is strongly correlated with demand, and consumer spending on higher-value meat and poultry cuts isn't likely to recover significantly until the economy and consumer confidence in the economy recovers, he said.
That recover, he projected, is probably a year away.
In the meantime, consumers will buy pork rather than beef, poultry rather than pork, and cheaper processed products rather than breasts, chops and steaks, sources said.
This will keep livestock and poultry prices under extreme pressure for the rest of this year and into next year, sources said.
There is ample evidence. HealthFocus International, a consumer market research firm focused on health and nutrition, has reported that 35pc of consumers responding to a recent survey said they are buying cheaper brands to save money.
HealthFocus said this is a consequence of decreased incomes and fright, noting that one third of primary grocery shoppers said their households have experienced income reductions in the last six months, and 85pc said they are nervous over the economy.
Wal-Mart Stores Inc. has reported that it is expanding its private-label line, Great Value, in response to consumer demand for cheaper, in-house brands - sales of which are expanding 10pc per year, compared with 2.8pc for national brands.
Livestock and poultry producers are decreasing production in an effort to get production low enough to get prices for meat and poultry high enough to get prices for livestock and poultry to a point to cover costs, and across the protein sector, all production this year will be under year ago.
That's unprecedented, Elam said, but the upside is that when the economy and consumer confidence do recover, the meat and poultry production base will be extremely tight, which should be supportive to price rallies.
However, the issue is how many producers will be there when that happens.
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