Feed Focus: Drought and the Cost of Meat

Spend Matters welcomes a guest post from Robert Miles, at Mintec Ltd.

Meat lovers might expect to hear far more about the cost of cereals and meals upsetting not just their breakfast, but potentially more of their eating time in the weeks and months ahead.

As we all know the drought in the grain producing regions of the US has been well reported over the last few weeks. We need to consider more than just wheat and corn used in food production, as a lot of other markets are the starting points of these; bio-fuels, alcoholic beverages, starch and most importantly, the basic components of animal feed (around 65% of corn is used as feed).

These increases in price are likely to impact on the international cost of meat in a big way as this unseasonably hot weather and apparently ever rising demand looks like cutting available feed supply.

This, as a consequence could firstly lower the quantity of meat for sale, but more realistically make the cost of our end meat products more expensive. A broiler can take around 6-7 weeks to mature and some 50-70% of the costs of rearing relate to feed. The larger the animal gets, the more feed it needs to consume, a hog taking a little over half a year and some cattle taking a full two years. Therefore we may see rises being sought by suppliers for the cost of their poultry, followed by their pork and cattle.

With consumers already being cost conscious, there has been some research in Europe reported that people are switching meats and trading down, from beef to pork to poultry. Moving away from the more expensive cuts to ground meats, or just eating less meat, and on some days, where once they would have chosen to, not even eating meat at all.

Large meat exporters, such as the US or many of the countries of South America, are facing a choice of whether to grow meat for the future or focus on making quick money now on cereals or feed meal supply. It might make more sense to grow feed and ship it to countries like India or China where the demand is now, rather than to take the longer term risk of feeding expensive feed to their animals and hoping that they can get some return from the meat markets in the months, or in the case of cattle, even years ahead. The economics are increasing looking like they favour, or at least don't quite so inconvenience, those whose plans make a quick return. Volatility and currency movements in the world markets are making those with longer-term goals look like they are taking a needless gamble on their future returns.

- Robert Miles, Mintec Ltd.

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