If you know poker, you know how complex it can be when all players remain in the game after several rounds of betting. The game gets particularly challenging, with wide open combinations of both cards and player strategies. Those circumstances make decisions tough and unpredictable. 

The beef complex starts out 2013 in a similar environment. Lots of influences and sources of turbulence stubbornly remain; these include factors such as economic policy wrangling, ongoing concern about drought prospects and continuation of ever-tightening cattle supply, as well as many others.

Before moving into 2013, though, let’s first step back and look at the markets from a broader perspective. Figure 1 highlights the 52-week moving average for the Choice cutout and the fed market. Both moving averages finished 2012 at all-time highs: about $191 and $123 for the cutout and live market, respectively. The graph also underscores the importance of consumer spending and its influence on the wholesale market – as the cutout goes, so goes the live market.

That brings us to the state of the consumer for the coming year. Beef demand through 2012 has remained surprisingly solid despite relatively tepid consumer sentiment (Figure 2) and general cautiousness around the broader economy. That’s facilitated the ability to pass on higher prices through most marketing channels.

However, that capacity will reach some upper limit. To that point, Fitch Ratings 2013 outlook for commodity protein, produce and dairy explains that:

"…consumer price fatigue remains a risk for the protein industry, given that CPI for proteins has outpaced increases in the broader food-at-home CPI since 2010…Fitch believes chicken processors have the best pricing power given a positive longer term outlook for consumption and lower relative pricing. For example, for the year-to-date period ended October 2012, the average U.S. retail price of chicken was $1.88/lb. vs. $3.54/lb. for pork chops, and $6.23/lb. for beef steaks.”  

Will consumers begin to hold back their beef spending? That remains to be seen, but that very consideration mandates careful monitoring around general consumer attitudes regarding the economy and policy.