Inflation, rising fuel costs, a Russia-Ukraine conflict, and persistent supply chain problems are all causing Americans to assess how they might tighten their belts. And many appear to be cutting down on grocery bills by dropping certain food staples like meat.
Indeed, according to Morning Consult, the surge in meat prices are front of mind for American grocery shoppers, with over half of survey respondents suggesting alarm over the cost of meat. Furthermore, cutting down on meat is cited as the most popular diet trend among those surveyed, lending some credence to a much-ridiculed Bloomberg opinion piece suggesting people with lower incomes substitute lentils for meat.
"Meat, one of the most expensive categories in the supermarket, tops the list of cost concerns," Emily Moquin, Morning Consult's food & beverage analyst told Real Money. "Comparing prices and switching from name brands to generic or store brands top the list, and at least one-third of shoppers say they 'often' take such measures to save money."
Yet, actual results from major meat and poultry producers like Brazil's JBS SA (JBSAY), Tyson Foods (TSN) , Pilgrim's Pride (PPC) , and Sanderson Farms (SAFM) are bucking these headwinds. In fact, global meat and poultry producers are proving to be incredibly resilient.
Proof Is in the Print
The resilience of these producers was most recently brought to the forefront in JBS SA's earnings release earlier this week. The world's largest meat processing company reported record net revenue in the past year, marking a year-over-year increase of nearly 30%.
More importantly, the company recorded strong growth in margins across its business, while forecasting the room for continued strength into the year.
"The strong demand for pork boosted the prices and was important to sustain margin growth in the quarterly comparison and to keep margin stables in the annual comparison even in the face of a much more challenging cost scenario, especially labor costs, packaging, and transport," JBS CFO Guilherme Perboyre Cavalcanti told analysts on Monday.
He added that despite labor shortages, the company was able to overcome.
Labor shortages stretch far beyond Brazil, as well, with the United States still grappling with its own issues. On this front, Tyson's endeavors to mitigate costs have also shown great promise and provided for growing optimism on the firm's long-term promise.
At the turn of the year, the firm announced an ambitious $1.3 billion investment plan to automate much of its production line in coming years.
"We've started to see profitability improvement resulting from our actions. For example, we're investing aggressively in automation and technology to help us address some of the most hard-to-fill roles," Tyson CEO Donnie King told analysts in an earnings call last month. "This is not a series of projects, but is a well-planned program with automation designed to use common designs and equipment across our plants to optimize cost, maintenance, and asset utilization."
Overall, this evident profitability improvement shows an ability for many of these firms to mitigate supply chain and labor problems while passing increased costs from inflation and raw material costs to consumers.
International Acceleration
Still, there is a lingering concern about the consumer trends that show more Americans are moving toward vegetarianism and cost-cutting around meat-centered meal planning. How sustainable will demand prove?
The issue is that these consumer trends are largely confined to the U.S. and Europe, while other parts of the globe pick up the slack. According to the OECD Agricultural Outlook, meat consumption is projected to grow by 30% in Africa, 18% in Asia, and 1% in Latin America by 2030.
"International meat trade will expand in response to growing demand from countries in Asia and the Near East, where production will remain largely insufficient to meet demand," the report states. "Import demand in several middle and high-income Asian countries has been steadily increasing in recent years due to a shift toward diets that include higher quantities of animal products."
Given this insufficient production, which has been hampered even further by disease outbreaks among livestock and Covid lockdowns, international meat producers like JBS, Pilgrim's Pride, Tyson, and more will likely need to fill the void. Indeed, China recently ascended to become the third most popular destination for U.S. beef exports and is likely to only ascend further.
"Global consumers are increasingly preferring U.S.-produced beef, and we're seeing stronger global demand as a result of that," Shane Miller, Group President of Tyson-subsidiary Fresh Meat told analysts in a recent earnings presentation. "We continue to see very good interest coming out of Asia, especially for our high-quality yield and beef."
He cited China as a primary destination for Tyson products and the beef industry more generally. It is worth noting the nation is already the most popular destination for pork and has increased by double digits in recent years. Per the USDA, China's demand for pork exports exceeded its closest peer by nearly $1 billion.
While geopolitical wrangling and trade tamps could most definitely harm this growth trajectory in Asia, the trends outside of the climate-focused continents of the U.S. and Europe appear encouraging. As such, investors seeking to mitigate inflationary pressures in purchasing groceries might consider adding some meat producers and packagers to their shopping list.
