By Steve Meyer, economist with Kerns and Associates
While exports deservedly were lauded at every turn in 2017 as the driver of good times for U.S. pork producers, domestic demand was having a quiet but solid year.
Real per capita expenditures (RPCE), a measure of demand, got off to a rough start in 2017. At the end of February, the RPCE for pork trailed its year-earlier level by nearly 9 percent. However, pork RPCE exceeded year-earlier levels in seven subsequent months, finishing the year less than 1 percent down from the overall 2016 level.
A year-on-year figure with a minus sign isn’t acceptable to anyone, but given the excellent pork demand levels of the past few years, staying close was a victory.
Pork demand was the clear winner among the major meat/poultry species in 2017, finishing the year with a RPCE just 0.4 percent behind the 2016 level. Beef RPCE ended the year 1.1 percent lower than a year ago while chicken RPCE was down 1.7 percent.
U.S. consumers spent $190.05 in year-2014 dollars per person on pork last year. That compares to $190.82 in 2016 and 2015’s record level of $197.46. Those figures compare to annual RPCEs in the high $160s in 2008 through 2011 when the recession and a “post-Atkins diet” slide took a terrific toll on meat demand in general.
Demand change is measured by comparing both consumption and price to earlier levels. Those factors, of course, are negatively related, so one must consider the magnitudes of change for both. With only a 0.4 percent change in RPCE for the year, it is no surprise that both the real retail pork price and per capita consumption were near 2016 levels.
Pork prices held their own in 2017, declining only 1 percent in spite of record large production and significantly lower real retail prices for beef (-3.6 percent) and chicken (-3.2 percent). Per capita pork consumption increased 0.6 percent over 2016 levels as U.S. consumers helped our overseas customers clear the record pork production.
What Does 2018 Hold?
Look for more of the same but likely with a positive year-on-year RPCE growth figure. The U.S. economy remains strong. Employment levels continue to grow and the unemployment rate is barely above 4 percent.
More importantly, consumer income levels are beginning to rise, with real per capita personal income growing nearly 2 percent in November, the last month with available data. Wages are beginning to respond to the tight labor market.
Inflation will likely increase, but the Federal Reserve will not allow it to get much above 3 percent before taking action to slow price growth. Lower retail prices for beef and chicken will be the primary negative factors for the year.
Here’s to a successful 2018 for domestic pork demand!