The controversy over beef demand continues to surface every few months. Is it improving or getting worse? The problem hinges a little on your definition of demand. To an economist, "beef demand" is a schedule of the quantities of beef taken from the market at different price levels. In other words, it's not one figure but actually a combination of two.
If the amount of beef available goes down, then the price should go up. As long as we stay on the same "schedule," there is no change in demand. Since this schedule of price and quantity has two dimensions, it can be put on a graph. When these points are joined, it forms a demand curve. Sliding anywhere along that curve represents no change in demand. It takes a shift of the curve either to the axis or out from the axis to represent a real change in demand.
Retail beef prices usually are used in such an analysis because this is where the demand is actually determined. In order to measure this demand correctly, economists also adjust these prices for inflation. As a result, the retail beef price is usually divided by the consumer price index.
Looking at this type of analysis for the last several years indicates that beef demand has not fared well. The demand curve has shifted slightly toward the axis. This indicates that demand is moving lower.
We are now in a mild cattle liquidation period that was preceded by a very slow seven-year buildup. For example, from 1990 to 1996, the cattle and calf inventory rose only 8%. Since then, numbers have dropped 4%. It is these changes in production that determine the quantity of beef available and, when divided by the U.S. population, yields the per capita consumption. Since production variations have been quite small, the per capita consumption of beef has only varied from 66.5-67.8 lbs./ person during the last eight years.
Retail beef prices averaged $2.81/lb. in 1990 and $2.80/lb. in 1996. Since then, prices have actually moved slightly lower despite further reductions in consumption levels. All of this occurred even before any adjustments in inflation. (Which incidentally, is at its lowest in decades.)
Cattle Feeding Cattle and calves on feed for the U.S. slaughter market as of April 1 reached 10.11 million head in feedlots with capacities of 1,000 head or more. That's 3% below a year ago and 2% under March. The only states recording increases in on-feed numbers were Washington, Idaho, South Dakota and Nebraska.
The inventory included 6.18 million steers and steer calves and 3.88 million heifers and heifer calves. Both of these levels were down about the same proportion from a year ago.
Fed-cattle marketings in March totaled 1.87 million head, 6% above the comparable 1997 level. This March level was up 1% from the revised February marketings. Forecast equations still point toward slightly higher marketing levels for the next couple of months.
Placements of cattle and calves in feedlots in March reached 1.71 million head, 13% below last year but up 14% from February. Net placements (with other disappearance removed) were 1.61 million head, off about 14% from a year ago. Only two states - Idaho and Washington - reported higher placements than a year ago in March.
Cattle and calves placed on feed in March were lower in each weight group except the category of 800 lbs. and more. That class was up 12% while the others were down a minimum of 16%. As a consequence, the lighter weights, those under 700 lbs., only represented 39% of the total placements.
Some slight revisions were made in the February marketing and placement figures. It appears that all the changes, however, were in Colorado.
Looking Ahead The fed-cattle market moved up slightly in early April, then held in the mid-$60s the rest of the month. This allowed Choice steers to achieve their best price levels thus far in 1998.
Feeder cattle and calf prices followed the direction of feds. They recorded their highest level of the year and were $3-4 above a year ago.
Marketings of fed cattle, while increasing slightly during the next couple of months, are not likely to create much of a supply problem for the near future. As a consequence, the fed-cattle market should show some further improvement into the summer. The lower placement levels could also keep beef supplies substantially under last year for the fall market.
Feeder cattle and calves will continue to reflect the general price direction of feds. Tight feeder availability and favorable grain prices will help retain a strong feedlot demand for replacement animals. If cattlemen expand breeding herds this year, that will further reduce the number of feeder heifers.