As consumer confidence explodes to an 18-year high, not seen since the dot-com bubble, Americans feel like they have got more money. Despite negative real wage growth for the bottom 90 percent, and consumer credit exploding higher as credit card debt hits record highs, the artificial feeling of the “greatest economy ever” could be seen in the demand for premium steaks.
The appearance of a bustling economy thanks to second-quarter growth numbers inflated by shifts in consumption to avoid upcoming tariffs and low unemployment in the gig-economy has sparked consumer demand for beef this summer, typically considered a delicacy food too many.
A few months back, we reported a mountain of meat is building in U.S. cold-storage facilities, spurred by a surge in production and President Trump’s trade war that is pressuring foreign demand.
More than 2.5 billion pounds of meat from beef, hog, poultry, and turkey are being stockpiled in cold-storage warehouses across the country amid trade disputes with major U.S. meat exporters. Federal data in July showed record meat levels which has sent the industry into a dangerous deflationary trend.
Deflation in meat prices have triggered increased consumer demand, but not at levels that are in pace with record production of chickens and hogs. The excess supply is generally exported to Mexico and China—among the biggest foreign buyers of U.S. meat — have both recently slapped tariffs on U.S. hog products in response to President Trump’s tariffs on steel, aluminum, and other items. Industry officials told the WSJ that U.S. hams, chops and livers have become more expensive in international markets, coupled with a strong dollar weighing on local currencies, which has dramatically reduced demand for U.S. meats.
America’s meat industry production is rapidly filling up the specialized warehouses built to store meat. “We are packed full,” said Joe Rumsey, president of Arkansas-based Zero Mountain Inc.
Record supplies of chicken and pork in the U.S., and spot prices at 3 to 4-year lows has overwhelmed demand. Companies including Tyson Foods Inc. and Sanderson Farms Inc. have recently said with meat prices in decline, Americans have been gravitating towards beef products — putting pressure on the poultry industry.
“Margins for retailers are great, and consumers are back into beef now that prices are better,” said Will Sawyer, an economist at Greenwood Village, Colorado-based CoBank, who spoke with Bloomberg. “Chicken, which had been the recession special for so long, is having to take a back seat to the more pricey protein.”
Bloomberg believes Americans’ increased demand for burgers and steaks partly because they have been deprived.
“A drought caused ranchers to reduce herds to a six-decade low in 2014, and beef prices shot up to an all-time high. The meat was so expensive it forced consumers to cut back, with consumption declining to the lowest since the 1970s. Now, even with cheaper prices and bigger supplies, demand still hasn’t bounced back to where it was before the recession, Sawyer said. That means there’s still plenty of room for increased buying,” said Bloomberg.
According to the U.S. Department of Agriculture, beef consumption among Americans will rise 1.4 percent this year to 57.7 pounds on a per-capita basis. Government officials forecast that demand will grow to 58.7 pounds next year.
Hedge funds have taken notice of the latest beef craze. As of August 28, professionals had a cattle net-long position of 62,165 futures and options, according to U.S. Commodity Futures Trading Commission.
Gary Morrison, a commodity researcher Urner Barry, told Bloomberg that increased demand by retailers with good margins have allowed them to discount prices for fancier cuts of meat — allowing consumer demand to perk up.
As Labor Day grillers fill up their propane tanks and prepare their backyards for American festivities, the deflationary collapse in meat prices via record stockpiles in cold storage facilities has been remarkably beneficial to the broke American consumer.
So is surging beef demand really a symbol of a roaring economy, or is it that a deflationary collapse in prices has found the sweet spot (equilibrium) of where beef is now affordable once more?