BMO: US protein market faces margin squeeze as consumers shift from beef to poultry

Protein demand may be holding firm, but the economics of getting protein onto consumers’ plates are becoming increasingly difficult. Across beef, seafood, and plant-based categories, manufacturers are navigating tighter supplies, rising input costs, climate-related disruptions, and consumers increasingly unwilling to absorb higher prices.

The result is a market caught between two competing forces: consumers remain committed to protein, particularly as interest in protein-rich diets and GLP-1 medications grows, while inflation is changing what they are willing, and able to pay for it.

For beef, the squeeze is particularly acute. The US cattle herd has fallen to a 75-year low, while climate risks, disease, and higher input costs are adding further uncertainty to supply. 

Speaking to Food Ingredients First, BMO Commercial Bank managing director and group head of Food, Consumer & Agribusiness, Todd Giles, says these pressures represent a multi-year structural challenge rather than a temporary disruption.

As shoppers push back against higher prices, manufacturers and retailers are responding by shifting toward more affordable protein options, with poultry emerging as a key beneficiary. At the same time, private-label products and value-focused “good” and “better” offerings are gaining importance as consumers trade down without abandoning protein altogether.

Consumers appear determined to maintain their protein intake despite rising grocery costs. What shifts are you seeing in purchasing behavior, and which protein categories are proving the most resilient?

Giles: With the growing accessibility of GLP-1s, consumers are increasingly focused on maximizing their protein intake, driving sustained demand in the industry. However, shoppers have reached an inflection point with inflation, and they are pushing back on rising prices. As a result, while overall demand for protein remains stable, consumers are migrating from expensive beef toward poultry, where prices currently remain relatively stable. Retailers are capitalizing on this shift by emphasizing private-label and non-premium offerings. To protect their own market share, manufacturers must respond strategically to this evolving landscape. 

Additionally, demand for plant-based proteins continues to rise, fueled by consumer interest and their widespread use as additives in packaged food products. As consumers increasingly look beyond traditional animal proteins, companies are well-positioned to meet demand with innovative, high-protein alternatives that reflect changing consumer preferences.

BMO Commercial Bank managing director and group head of Food, Consumer & Agribusiness Todd Giles.

With the US beef herd at a 75-year low and climate-related disruptions affecting multiple protein sources, do you see today’s supply pressures as a temporary cycle or a long-term structural change for the industry?

Giles: The current pressures on the beef industry represent a multi-year structural challenge rather than a quick, temporary dip. Longer-term trends like the historic herd lows are interacting with shorter-term events like the screwworm resurgence, creating price pressures that will be with us for the next several years. Additional pressures, such as climate risks and geopolitical challenges, will also likely impact price pressure on inputs like feed, so we expect supply-side headwinds in the beef industry will persist for at least a couple more years. 

And yet, the industry has shown it can adapt. In June of 2025, the USDA’s 2026 beef production forecast was raised by 2% — increasing totals by roughly 540 million pounds — driven largely by expectations for higher cattle placement, as strong feeder calf prices encouraged producers to sell heifers rather than retain them for herd building. This demonstrates the resilience of the US beef supply chain. While overall placements are still projected to remain lower than anticipated, the industry’s ability to adjust to changing conditions gives us confidence that it can navigate today’s challenges and begin to recover. 

How are food manufacturers adapting their protein portfolios in response to these challenges? Are you seeing increased investment in poultry, seafood, plant-based, or blended protein products?

Giles: Food manufacturers are rapidly adapting their protein portfolios by prioritizing operational efficiency and pivoting toward high-yield, cost-effective options — specifically poultry — to combat rising beef prices. Poultry will likely become the cornerstone of production and retail, with manufacturers investing in supplying chicken to foodservice providers, and retailers leaning more heavily into promoting chicken products to consumers.

Simultaneously, companies are also working to meet strong consumer demands driven by health trends, GLP-1 adoption and affordability by focusing on value-driven, protein-dense offerings like meat snacks and prepared poultry that maximize protein per serving. While plant-based alternatives face ongoing challenges due to consumer taste preferences, plant-derived protein additives remain a high-growth area for CPG and beverage companies. 

As retailers and foodservice operators face growing resistance to higher prices, what pricing and product strategies are proving most effective at protecting margins without losing consumers?

Giles: With consumers hitting a wall on price increases, food manufacturers are realizing they can no longer simply pass costs down the line. Successful brands will likely need to emphasize the “good” and “better” tiers in their architecture, as price fatigue draws consumers away from the “best” premium tier options. We are seeing smaller packaging as an option for some, but reworking packaging often requires significant upfront costs, which may or may not be worth the long-term savings, so manufacturers should be careful in their analysis before going down that path. 

While most are taking a more conservative approach and making capital expenditures that they know will yield strong ROI, many are taking big bets on AI and investing in specific technology capabilities to optimize their supply chain logistics, stripping inefficiencies out of shipping strategy to protect the bottom line without passing along higher costs to customers.

As inflation continues to pressure food and grocery prices, developing private-label products is another important strategy for foodservice operators and retailers. Private labels offer comparable quality at a lower cost, and with greater pricing control and margin protection. Through premiumization and innovation, private labels are increasingly becoming preferred brands that build loyalty without compromising value.

From your perspective as a commercial banker, what are the biggest financial pressures facing protein manufacturers and agri-businesses today, and where are you seeing the greatest vulnerabilities across the supply chain?

Giles: One of the most acute financial pressures right now is the tightening on processing margins, particularly in the beef sector, where processors are forced to buy at high market prices but cannot pass those full costs onto fatigued consumers. We are also closely watching the long-term impact of elevated fertilizer prices and port logistics, which could drive a new wave of food inflation going into fiscal year 2027. 

Furthermore, looming weather patterns like El Niño threaten global seafood supply chains, specifically impacting vital fish meal and oil imports from South America, as well as potential commodity prices. The greatest vulnerability lies with companies heavily reliant on a single commodity or lacking the liquidity to endure these prolonged, compounding disruptions.

BMO says that elevated fertilizer prices and port logistics could drive a new wave of food inflation going into fiscal year 2027.

Alternative cash-flow financing can help businesses navigate these challenges. What financing solutions are companies turning to, and how can they help maintain profitability during periods of sustained volatility?

Giles: To navigate today’s volatile market, it is crucial for businesses to evaluate their capital structures and consider migrating toward cash-flow-based financing alternatives rather than relying strictly on asset-based models. A cash-flow-based model strategy can help protect core operations during difficult cycles. Because of the strength of BMO’s Asset Based Lending team, we typically present both alternatives, walk through the pros and cons and prioritize what’s important to their long-term strategic and growth initiatives. 

This is also why it is important for your banking partner to be subject matter experts in your industry, not merely a capital supplier. A knowledgeable banking partner provides the crucial guidance needed to help navigate industry-specific cycles and maintain long-term profitability, even in turbulent times. 

How are geopolitical risks — including tariffs, trade uncertainty, and supply chain disruptions — reshaping sourcing, investment, and long-term planning across the protein sector?

Giles: Geopolitical friction and trade uncertainties are forcing agriculture and protein businesses to rethink their reliance on traditionally globalized supply chains. For example, fluctuating import tariffs and port disruptions have severe downstream effects on everything from livestock feed to essential fertilizer inputs. We also saw that the current tariff policy can be responsive to market needs, with tariffs being rolled back on Australian and New Zealand beef exports late last year due to historic lows in domestic cattle supply.

The important thing for forward-looking companies is to control what they can control within a more volatile geopolitical environment and maintain flexibility to respond to changes. One investment that can help drive success in this environment is utilizing AI and advanced data analytics to find more efficient import and export routes. Ultimately, the best strategy in the current geopolitical climate is to build diversified, resilient operations that prioritize regional stability over the lowest possible global cost.

Looking ahead over the next two to three years, what do you see as the biggest challenge for the protein industry, and where do you expect the greatest opportunities for manufacturers and foodservice operators? 

Giles: The protein market’s greatest challenge is that it is not the only consumer good that is getting more expensive as consumers run out of appetite to eat the higher costs. To succeed, the industry will need to find a way to absorb higher input costs into their financial planning rather than passing them on to consumers. This will require companies to look across operations and supply chains to find potential sources of savings to cope. 

But there are still major opportunities. End retailers usually offer good, better, and best options. With prices continuing to rise across the board for consumers and disruptions projected to drive protein prices up even further, I expect that consumers will start gravitating more toward the “better.” 

Consumers are not going to stop buying protein anytime soon, but we will see them continuing to trade down as budgets tighten, limiting the need for premium options. The opportunity that this presents is for the manufacturers and foodservice operators to excel in the “better” space. Being a reliable manufacturer and operator that balances accessibility with a quality protein product will be crucial to success.

Lastly, the need for flexibility and innovation cannot be dismissed as one of the biggest opportunities for foodservice operators and manufacturers. Identifying opportunities for innovation to evolve products that add value, solve your customers’ problems, and meet the needs of today’s consumer will always be a roadmap to long-term success.