“2015 saw the largest increase in U.S. per capita meat consumption in 40 years,” said report author and Rabobank senior analyst Will Sawyer.
The findings, part of “Chickens, Cows, and Pigs… Oh My! Implications of Record U.S. Protein Expansion,” note the 2015 increase in domestic consumption is remarkable in that there was relatively weak growth during the first half of the decade. In fact, from 2005-2014, U.S. per capita meat consumption fell 9 percent, with beef consumption down 18 percent.
Sawyer forecasts the U.S. animal protein demand curve will slow but remain positive, with domestic consumption growing at an annual rate of about 1.2 to 1.5 percent between 2016-2018. However, while it still may be the largest three-year growth in a decade, expected growth in production – outpacing consumption growth – will challenge profitability.
Production growth
U.S. production of animal protein (in the form of poultry, pork and beef) will grow at a rate of 2.5 percent annually between 2016-2018.
Beef will play a leading role in that growth, as herd rebuilding will accelerate beef production into 2018-2019. Heifer retention and cow herd expansion are expected to lead to a 4 percent increase in beef production in 2017. With a favorable price environment, production increases are expected to continue through 2020.
The downside of greater supplies is that prices will be lower. Rabobank said consumers will see lower retail meat prices, especially for beef and pork. Compared to 2015, 2018 retail beef prices could be 22 percent lower.
Trade outlook
Adding importance to the domestic market is the fact a strong U.S. dollar will continue to create headwinds for exports, most noteworthy among some of the biggest animal protein buyers, Canada, Mexico and Japan. At the same time, animal protein production competitors Brazil and Argentina are seeing declining currency values.
The trade situation for beef is a mixed bag, with threats and opportunities on both the export and import fronts. A flood of Australian beef trimmings has been entering the U.S., but that will decline as Australia’s cattle herd suffers from the drought and is in the early stages of restocking. That should open the way for U.S. sales opportunities to Southeast Asia.
Once it works through infrastructure and political challenges, Brazil and Australia will become even greater export competitors, with some of that beef finding its way into U.S. markets.
Back at home, beef will also see increased competition from pork and chicken. Both sectors are rapidly building processing capacity. As grain prices decline, crop producers are looking to diversify into hogs.
So, despite a positive domestic demand curve, Rabobank forecasts a challenging profit environment for U.S. meat animal producers, requiring capital and foresight.
“While we don’t foresee margins falling to the lows of 2008 and 2009 as prices decline through 2018, any producer considering a possible sale or divestiture should move quickly, as the outlook for margins and valuation multiples isn’t moving in their favor,” Sawyer said.
Five paths for success
In an evolving market, Sawyer outlined five paths to success for U.S. animal protein companies.
1) The value of value-added. Value-added products generally have better margins and have less exposure to commodity-product price swings.
2) Find your niche. Higher prices and more attractive margins are available in niche markets, including products making “free-from” claims. Companies that can best understand millennials and their demands will capture premium prices.
3) Own more links in the supply chain, not fewer. Companies controlling links, from how animals are raised all the way to the meat case, will be able to capitalize on rapid changes in protein consumption trends.
4) Bigger is better. Consolidation opportunities are expected, but those seeking to acquire other companies will need to show restraint.
5) Find the balance between trade opportunities and risks. Tailor export offerings to the preferences of international customers. 
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Dave Natzke
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