What is in this article?:
- Beef Demand Is The Key To Cattle Prices In 2012
- Short-Run Factors
While supply is clearly the main driver pushing cattle and beef prices upward, it is consumer beef demand that will determine just how far prices will go.
Other short-run factors may also affect willingness to purchase beef products. Consumer decisions are driven by value, which is a combination of preferences and price of a product relative to other products that may be substitutes. In the case of beef, these are other meat products, mostly pork and poultry. Therefore, beef demand at any point in time will be determined in part by the prices of pork and poultry relative to beef. In 2011, pork prices, like beef, moved to new record levels thus maintaining a relative balance between beef and pork prices.
Through the first 11 months of 2011, retail beef and pork prices both increased about 10% year over year. During the same period, retail broiler prices increased only about 2%. This is another sign of strong beef preferences relative to chicken. Anticipated decreases in broiler production in 2012 should support broiler prices and provide additional support for higher beef prices.
Since 2008, the "ability" part of beef demand has played a bigger role in beef demand than for many years prior. The 2008-09 recession caused significant adjustments in consumer spending and may have permanently changed spending patterns. Macroeconomic measures provide a general backdrop for consumer spending ability.
Post-recessionary GDP growth in 2010 was followed by weaker-than-expected growth in 2011 in the U.S. economy and other countries as well. The tsunami in Japan and the continuing fragile economic situation in the Euro area limited global growth. General expectations for 2012 are for continued anemic macroeconomic performance in the U.S. and most major developed and developing countries.
In the U.S., unemployment remains stubbornly high with little decrease through most of 2011. Inflation-adjusted personal disposable income decreased slightly from 2010 levels in the second and third quarters of 2011. Data for the fourth quarter aren’t yet available. However, personal savings rates, which jumped sharply during and immediately after the recession, fell back to a more modest level in late 2011 and likely supported additional consumer spending.
Anecdotal indications of strong holiday spending suggest consumers have adjusted to the post-recession environment. Recent stories of large winter crowds at vacation venues such as Disney World are indications that consumers are moving past recession-induced retrenchment to more typical consumption, albeit with continued belt-tightening. For instance, beef middle meat prices improved noticeably in the last quarter of 2011 and the Restaurant Performance Index, which has improved erratically during the recovery, moved towards a strong finish for the year with the latest November data.
Cattle and beef prices will be higher in 2012 but just how much higher depends on consumer demand. Continued fragility of the U.S. and global economies make demand the biggest question mark for the beef industry in the New Year. Though consumer preferences for beef remain strong, they may have changed. Consumer reaction to higher prices may result in additional changes in demand for middle meats relative to end meats and for away-from-home vs. at-home beef consumption.
In the absence of major U.S. or global macroeconomic weakness, beef demand is sufficiently strong to support higher beef and cattle prices in 2012, but exactly how that demand will be manifest across different cuts and qualities of beef remains to be seen.