090315 Meat-Eaters "Trading Down" From Steak to Chicken

March 7, 2009

(Bloomberg) -- Meat-eaters are "trading down" from beef and pork in favor of chicken as consumers pare their food costs, according to the chairman of grocery chain Safeway Inc. and analysts at Deutsche Bank AG.

The switch will squeeze beef and pork producers, while chicken sellers may gain from the quest for "cheaper protein," Deutsche Bank said in its "Monthly Mouthful" report. Still, poultry prices face pressure as rising protectionism and global recession make global trade more competitive, the report said.

"We're seeing more shifts in the meat category to cheaper meats -- ground beef and chicken -- than we saw earlier in the year," said Safeway Chairman Steven Burd. There is "a trading down virtually across the board" in retail and even "non- retail" products, he said during the Pleasanton, California- based company's earnings teleconference on Feb. 26.

The CHART OF THE DAY compares the U.S. wholesale prices of chicken breasts, beef brisket, beef cutout and pork belly futures since Lehman Brothers Holdings Inc. filed for bankruptcy, an event that helped trigger the credit crunch and recession. Notice how pork futures initially rallied as an alternative investment, but have declined along with the more expensive cut of beef.

"Diminishing demand for hogs and cattle have led to ample market-ready animal supplies, despite liquidation efforts," Deutsche Bank analysts including Christina McGlone wrote in the Feb. 24 report. In addition to lower demand for beef, the slaughter of dairy cows is set to increase in 2009, as farmers look to cut costs.

"Dairy cow slaughter would impact the price of domestic lean beef, the price of imported beef and the price of beef cull cows," the report said. One bright spot is the decline of grain prices, which have helped boost margins for some in the poultry industry, in which producers tend to be more flexible in adjusting supply to demand, according to Deutsche Bank.