While discussing the market outlook, I have probably used the phrase, “it depends upon consumer demand” more over the past 30 days than in the previous 30 years! Prices have always been a function of both supply and demand, but the last 12 months have brought the demand side of the equation to a much more prominent position. Obviously, record prices across the supply chain bring the topic to the forefront, particularly in an inflationary economy where many consumers are financially pinched and keeping in mind that demand includes both the willingness and the ABILITY to buy a product.
There have been numerous articles with opinions on the financial condition of the U.S. economy, the global economy, and the U.S. consumer and yes, they are all connected. Keeping in mind this issue of ability to spend money, there is more than enough government data to analyze and provide an assessment. However, rather than go through all of those numbers, I think the ability to purchase can be consolidated into three primary issues – debt, both consumer debt and government debt, consumer prices, and interest rates. Regarding the U.S. consumer, those three factors can have a direct impact on consumer spending. Consumers are strapped with record credit card debt ($1 trillion) and nearly 3% price inflation across all items with little or no signs of relief as they stand at the supermarket meat case looking at record-high beef prices. It isn’t difficult to move a few steps down the case to the ground beef!
Globally, the impact on the value of the dollar which in turn, impacts trade. A strong dollar only makes a commodity at a record price even more expensive. Through March of 2024, U.S. exports of fresh and frozen beef and variety meats was down 5% from a year earlier, but the value of those same exports was 6% higher than a year ago. The increase in value is a function of strong U.S. prices coupled with a strong dollar. Furthermore, Asia countries who are major buyers of U.S. beef are dealing with economies that have been compared to those of the 1997 Asian financial crisis. This does not provide a very optimistic outlook for export volume.
I am not pessimistic when I bring up this major issue of debt whether it be the $35 trillion public debt or personal consumer debt and how it might impact red meat demand. However, I do think we need to be realistic in assessing the market outlook. Record prices driven by strong demand can cause one to be remiss regarding the downside to the market and managing risk accordingly.
Remember the public debt is also the consumer’s debt. This is an important issue. While we seem to continue going down the road with public debt hanging over our heads, at some point the “chickens will come home to roost” just as when the banker calls a note due on a private debt. Assess and manage your business risk.
