A Few Thoughts by John Nalivka: Meat industry supply-demand economics

Analysis of red meat and poultry markets has always been generally driven by the supply side of the price equation as USDA reporting largely supports supply-driven market analysis.  Certainly, supply analysis is critical. It is one-half of the market equation. However, the question can be asked – is there too much reliance placed on the accuracy of USDA survey data or information? We know that survey data is not perfect. It should be taken in that context. The release of today’s March 1 Quarterly Hogs and Pigs Report provides an exceptionally good example of how this information may lead to misleading conclusions regarding future supply.

There are always revisions to the survey information. In today’s report, the December 1 Hogs and Pigs Report released on December 23, 2024, indicated the All Hogs and Pigs Inventory was 75.845 million head, up 1 percent from a year earlier. The Kept for Breeding category was 6.004 million head and even with a year earlier while the surveyed total of Market ogHoHogs was indicated to be up 1% on the December 1 report. Today’s (March 27) Quarterly Report indicated significant revisions to the inventory of Market Hogs from the number on that December 1 report – a 940,000 head revision! Percentagewise, that may not seem large, but from the perspective of projected market hog supplies, it is! That 940,000 head difference in the two reports suggests if the December 1 report was taken at face value, there was an opportunity for a critical forecasting error. Forecasts are not just forecasts in my business. They are used for business decisions. The question then arises – who made the mistake – USDA or the analyst?

I bring up the error in the Hogs and Pigs Report to illustrate potential problems that can occur when taking USDA surveys at face value and not adjusting projections using other information in addition to the surveys. There is a great deal of transformation occurring in the livestock and poultry industries. These industries have experienced meaningful changes in their structure and the products they produce and that we as consumers buy. Consequently, the economics of the red meat and poultry industries have changed with the result being the need for greater emphasis on the consumer and the demand side of the price equation. From an economist’s perspective, our efforts must increasingly consider those changing economics and their impact on markets rather than simply looking at USDA survey reports.

I am not disparaging the USDA surveys, but rather how they are used. They are not the end all to market analysis. They are one part of the analysis to project supply. The other part is demand and my perspective after 40 years of market analysis is that we need to bring more focus and analytics to that side of the equation – demand.