My View From The Country

Beef Demand, With Profitability, Is All-Important

Memorial Day weekend is considered a bellwether for beef demand throughout the summer.

The handwringing has begun. The movement of beef over the Memorial Day holiday was extremely disappointing. The holiday weekend is always seen as a bellwether of sort for beef demand for the summer.

Many experts are pointing out that the weather was not ideal on the East Coast, and that the slower movement over the holiday is something we will recover from as weather improves and the delayed grilling season kicks off in earnest. Some even make the case that we’ll actually see a release of pent-up demand early in the summer.

Economists are quick to point out that per-capita beef consumption isn’t an indicator of demand. It’s merely a function of taking total production, subtracting exports and dividing by the number of people.

One of my favorite market analysts used to make the point that we don’t throw beef in the ocean. Per-capita consumption is largely dictated by beef supply; the question is at what price level will we consume it?

The decline in consumption isn’t altogether unexpected. As our export opportunities grow, per-capita consumption naturally will slide downward. The same can be argued for population growth, a rate with which U.S. beef production isn’t keeping pace. What we really care about is profitability and the price levels that various supply and demand levels represent.

Nevertheless, the harsh reality is that beef demand continues to decline, and our industry continues to shrink as a result. Yes, BSE upset the export market back in 2003 and initiated a contraction in our industry, but the biggest culprit in the U.S. beef industry’s structural change was the subsidization of ethanol. Overnight, that program meant our industry needed to be significantly smaller. To top it all off, the short-term effects of drought may have caused us to shrink our industry more than those factors demanded.

The cautionary part of that story, though, is that beef prices are rising relative to our major competitors (pork and poultry). We’re also arguably making strides in product quality and improvement. However, we haven’t managed to change consumers’ perceived value calculation between beef and the other proteins, which means that, as beef prices rise in relation to pork and poultry, consumption is trending lower. 

There’s little doubt that the industry is looking at historically high cattle prices moving forward, but we’re also facing a much smaller industry if we cannot begin to effectively address these issues. Forty years ago, Americans consumed over 90 lbs. of beef on a per-capita basis (peaking at 94 lbs. in 1976). Twenty years ago, that number had fallen all the way to the low 60s (63 lbs. in 1984). The industry was successful in stopping the massive loss of market share and decrease in beef demand for a while, but the trend seems to be returning.

 

Enjoy what you are reading? Subscribe to BEEF Daily for industry news and commentary Monday-Thursday.

 

Consumption, which admittedly is more an indicator of supply than demand, fell to 55 lbs. last year. With record retail prices for steak and hamburger, the price resistance we’re seeing is starting to give the indication that perhaps our industry actually needs to be this small, and that we can’t sustain any form of real growth without some growth in beef demand.

For perspective, we need to keep in mind that ground beef prices and corn prices historically were very similar. Ground beef and corn both spent a lot of time below $2/lb. or $2/bu. Today, corn is $6/bu., while ground beef has risen to $3.50/lb.

We shrunk our industry, and consumers are shrinking consumption as a result of these price increases. The big difference is that the increase in corn prices escalated the prices of all feedstuffs as well. In fact, corn’s value relative to alfalfa hay has actually improved despite a tripling of price. Ground beef may be up 80% from a price perspective, but our competitors have not seen prices rise. The industry may have gotten sidetracked from the task of building beef demand due to some political infighting and a few rogue leaders and demagogues. But regardless of whether demand improves this summer or not, the size of this industry and producers’ profitability rest primarily on the strength of beef demand, and we need to refocus our efforts on that. No, we are not going to head the way of the lamb industry, but I don’t want us to completely cede our position at the center of America’s plate, either.

 

You might also like:

6 New Beef Industry Products In May 2013

Make-A-Wish Helps Leukemia Patient Become A Farmer

What The Industry Learned From Being "Pink Slimed"

Can You Wear The Animal Welfare Ribbon?

How To Grill A Perfect Steak

Discuss this Blog Entry 0

Post new comment
or to use your BEEF Magazine ID
What's My View From The Country?

As a fulltime rancher, opinion contribur Troy Marshall brings a unique perspective on how consumer and political trends affect livestock production.

Contributors

Troy Marshall

Troy Marshall is a multi-generational rancher who grew up in Wheatland, WY, and obtained an Equine Science/Animal Science degree from Colorado State University where he competed on both the livestock...

Sponsored Introduction Continue on to (or wait seconds) ×