Inflation’s Impacts on Meat Industry Expansion

by Peter Thomas Ricci, meatingplace.com

At the beginning of 2022, meat processors were riding one of the strongest markets in recent memory. Recordhigh margins, surging demand and soaring exports made U.S. meat a booming industry, and processors responded with aggressive plans for expansion.

Between adding capacity to existing plants and constructing entirely new facilities, the meat industry was committing billions of dollars to its expansionary visions, with the cattle industry alone looking to add 9,500 head to its daily capacity.

As 2022 comes to a close, the situation could not be more different: The U.S. economy is now experiencing its highest rates of inflation in four decades; prices across all industries (particularly in construction and food) have posted double-digit jumps from last year; and the Federal Reserve, in response to that inflation, has pursued aggressive monetary action and driven interest rates to their steepest levels in 24 years.

It’s a dramatic change that has inspired some reflection among processors, as economic headwinds now fly in the face of their profitability and growth plans.

“The industry, as a whole, is reevaluating the situation,” says Jeff Millican, a senior vice president with Wells Fargo’s agribusiness division. “I think it ultimately comes back to if they delay a construction, is it delayed indefinitely until things recalibrate? Or are they canceled altogether?”

And the overall circumstances, says Samir Sonti, an assistant professor at the CUNY School of Labor and Urban Studies, present the meat industry with historic challenges.

“We haven’t seen anything like this in a long time,” Sonti says, describing both 2022’s inflation and the Fed’s aggressive response. “I’m not sure we’ve seen anything like this in a century, since the return of the gold standard after World War I. It’s unclear what could happen after decades of general monetary ease.” ▫

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