The Market's Fine Print

The Delivery Craze

John Harrington
By  John Harrington , DTN Livestock Analyst
Hungry but don't want to leave the house? There are plenty of companies willing to deliver food straight to your door. (Photo by Rebecka J; CC BY 2.0)

Although the year is barely half spent, it's a good bet that 2018 is set to enter the history book of livestock markets as a chapter of great export worry.

Never mind that shipments of U.S. beef to foreign ports through the first third of the year exceeded January through April of 2017 by 10% in volume and 20% in value. Never mind that shipments of U.S. pork in the same time period surpassed the previous year to date by 4% in volume and 9% in value.

The nonstop scare of trade war headlines, underscored by disrespectful raspberries blown between long-respected international partners, has left many commercials and speculators oblivious to these clearly dazzling stats. I'm not saying that the second half of this year will necessarily turn into an export disaster -- a nightmare that will fully justify spot nervousness and fretful anticipation of faltering foreign demand.

Frankly, I have no idea in that regard. If held at gunpoint, I would probably guess that all the trade war bravado was long on hype and short on real negative consequences. But beyond identifying the situation as a bona fide "wildcard," no one really knows what 2018's red meat trade balance will ultimately look like.

Whatever it looks like, I have a hunch that this year will be remembered for its negative export potential than any other characteristic of the market. For one thing, U.S. meat producers have become export new junkies.

Why?

Because in many ways export business has become the lone growing point for an industry fully mature in terms of domestic demand. In short, American consumers are now asked to consume about as much meat on a per capita basis (i.e., estimated to total 223.9 pounds next year) as they safely can without risking an internal rupture.

Oh, we can slowly increase total meat consumption as U.S. population growth plugs along at 1% per annum. And every now and then a few wayward vegetarians will come home and find Jesus at McDonald's.

For the most part, however, health officials (and skyrocketing medical bills) warn all of us that we take on more calories at our own risk. I don't think we're quite at the foie gras stage (i.e., that luxury food made by crazy French chefs made from the exploded livers of force-fed ducks and geese), but this country's obesity profile is certainly full of dangerous potential.

According to a recent report by the Centers for Disease Control and Prevention, 38% of U.S. adults are obese, while 17% of teenagers measure up the same way. That's obese -- medically defined as having a body mass index (BMI), a measure of height to weight, that's more than 30. Another third or so of Americans are overweight.

People who are obese have higher rates of heart disease, diabetes, some cancers, arthritis and Alzheimer's disease.

I hasten to say that none of this is to suggest red meat consumption is unhealthy per se. But obesity, together with genetics and lack of exercise, is all about cumulative calories. America's ongoing health crisis should no doubt give us pause relative to the risk of overeating.

Even given national health risks and the creative demands of stuffing ourselves the equivalent of a bloated French goose -- grocers, fast-food managers and restaurateurs doggedly persevere in recruiting dangerously loyal members of the "My-Mouth-Is-Bigger-Than-My-Stomach Club."

And of course increasingly productive farmers and ranchers grow hoarse cheering them on. While meat producers are thoroughly educated on the economic importance of exports, they may be even better schooled in the common sense philosophy of Willie Sutton ("I rob banks because that's where the money is.")

Despite the truly impressive growth of red meat exports in recent years as percent of total commercial production, the wise analysis of Mr. Sutton won't let us forget that 87% of beef production and 75% of pork output is domestically consumed.

At the risk of simplifying the complex, there are really only three ways to stimulate greater home-front consumption: lower prices, improve quality or increase convenience. All three options may be in play at any given time. Individual viability can vary a great deal depending upon stages of expansion cycles, intensity of competition from farm to fork and margin realities up and down the chain of production.

Currently, the most widespread strategy employed to increase domestic meat consumption while maximizing net revenue (remember, all production that can't be frozen for all eternity must clear the deck at some price) seems to fall in the "convenience" category.

Specifically, I'm talking about the new magic wand of delivery.

From crumbling brick-and-mortars desperately casting about for new profit centers, to hopeful internet-based startups confidently planning to hit black ink by "year five," the food business world is now gushing with promises to deliver commodities wherever and whenever you can pay for them.

Stomach growling after midnight but dressed for bed? No problem. Starving and malnourished but can't leave your Fortnite marathon? No problem. You're a gourmet chef with a bad case of agoraphobia who's just used his last pinch of saffron? No problem.

Restaurants from McDonald's to Buffalo Wild Wings are hot on delivery and have signed on with apps like Uber Eats, which has seen its restaurant listings almost triple in the past year. Whole Foods is leading the charge for door-to-door delivery services for grocers, followed by companies called Instacart and Peapod.

Besides Uber Eats, cell phones are also crammed with apps like DoorDash, Grubhub and ClusterTruck, which are all ready to jump on the next impulsive order to deliver freshly cooked food to a customer who may be more bored than hungry.

And then there's the booming biz of meal kits from companies like Blue Apron, Hello Fresh and Plated. This sector of the delivery industry is geared to the slightly more ambitious stay-at-home pretend masters of their own kitchen, who have just enough energy to cut through cardboard and slice open plastic pouches.

I certainly don't mean to ridicule. We all need help in managing our busy lives, and if innovations in convenience like this can somehow boost further growth in per capita meat consumption, I'm all for it.

Yet this path through the dark woods makes me nervous in a couple of ways. First, doesn't the consumer inactivity encouraged by this new army of deliverers actually work to preclude honest hunger even more? If people refuse to burn the few calories necessary to get in the car and use the drive-through window at Burger King, how much fatter are we going to get?

Secondly, I worry that the convenience card (so often slapped down to stimulate demand) is very close to being played out. What's left for the business world to ease the "burden" of eating three squares? Companies that dispatch attractive employees to feed you like a baby? Pre-chewed entrees?

Perhaps these are two reasons why U.S. meat producers must stay focused on growing export demand, even while they necessarily do their best in servicing the often overserved at home.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket

(BE/AG)

John Harrington