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He could blame interest rates that haven’t fallen yet…or input costs that haven’t declined enough to make up for the escalation the past few years…or he could blame higher wages for workers.
Dr. Lee Schulz, associate professor and extension economist in the Iowa State University Department of Economics, says all those reasons are legitimate factors stressing the meat industry.
But this might be the biggest one: “The demand issue that we have.”
Demand. It could be the most significant aspect of the industry’s livelihood over which it has the least control.
The issue is that consumers can’t afford the price of meat today like they could when federal stimulus was showering them with cash following the arrival of COVID-19. “During the pandemic, as we injected a lot of money into the economy, that spurred a lot of demand across the board,” Schulz said. “And we benefited greatly when you look at pork and beef and the demand for those products.”
But that was then. This is now. “As we’ve seen inflationary pressures impact consumer incomes.”
COVID-19 impacted families in different ways. Clearly, some of that impact was truly awful.
Total Hospitalizations: 6,880,585
Total Deaths: 1,184,376
(Source: U.S. Centers for Disease Control.)
The above numbers from the U.S. Centers for Disease Control cover January 2020 to March 2024. They demonstrate how widespread the virus’ reach was. Hospitalizations, long recoveries, lost jobs, and deaths. That is the magnitude of this.
Back-to-back presidential administrations responded with a flurry of federal aid. It began with former president Donald Trump and then continued with his successor, Joe Biden.
Look at the infusion of cash to Americans (there were some income limits that could lessen these payments) in one year’s time that came during Trump’s final year in office and Biden’s first year in office:
A household with two adults and two children could have received $11,400 during that year, regardless of whether the family faced financial hardship due to sickness or reduced wages because of COVID-19. The Biden administration also temporarily increased the federal child tax credit from $2,000 to a maximum of $3,600 per child.
So, that same four-person household (two adults, two kids) could get an additional $3,200 in federal help from the federal child tax credit. That boosted the family’s total to $14,600 to add to the household income.
And that doesn’t include all the other pandemic-related aid that went to businesses, non-profits, and governments. Short-term that brought a huge amount of additional available cash for families to spend on items, like meat.
But that unprecedented addition of federal stimulus by the Trump and Biden administrations flooded the economy with nearly $5 trillion. While consumers initially had a lot more money to spend (again, on groceries like meat), they also eventually had to deal with the inflationary spikes that the actions by Trump and Biden caused in the efforts to avoid a calamitous collapse of the U.S. economy as it dealt with the unknown factors of the virus.
Add it all up and consumers have paid about 25% more for groceries, according to this report from CBS News. And for many, that extra pandemic-aid is gone.
Those higher costs for consumers mean they get fewer groceries for their remaining dollars. And that means producers in the meat industry are left with plentiful supply but without the necessary consumer demand.
“That’s really put prices under pressure, even though we’ve seen costs continue to rise,” Schulz said.
Pressure forces producers and companies to make tough decisions. Nearly 1,500 workers in Iowa just felt the brunt of that with news that Tyson Foods is closing a pork plant and West Liberty Foods is shutting down its turkey plant. Companies with operations in other states are also reducing or consolidating as they search for ways to reduce expenses as the producers’ supplies are outpacing consumers’ demands.
Reducing supplies could, in theory, be a longer-term strategy to help increase the prices that producers can get. But that doesn’t happen overnight.
“The pork that we’re eating today was decisions that were made 10 to 18 months ago,” Schulz said. “Cattle? It’s years ago, right? So, we can’t change that supply situation overnight, right?”
Learn More:
Dr. Lee Schulz asked, “Would you rather have demand that weakened or demand that never materialized?” as he details the pork industry struggles. Read that here.
Schulz explained a year ago the decline in the cattle industry and he illustrated it with the “rule of three.” Read that here.
He used an example from Biblical times to explain the smallest sheep and lamb inventory dating back to 1867. Read that here.
