Will cattle herds expand due to better prices?
BROOKINGS — On the production side of the beef industry, the focus has become whether the nation’s beef cow herd will begin to grow and eventually result in more beef production, said Darrell R. Mark, Adjunct Professor of Economics at South Dakota State University.
“On the demand side of the industry, such growth could eventually mean an increase in beef consumption. However, even if beef cow numbers are modestly higher at the beginning of 2014, it will likely be 2016 before beef production, and therefore beef consumption, begins to increase,” Mark explained.
In fact, Mark said beef consumption is forecasted to decline about 5 percent in 2014 to about 53 pounds per person (retail weight equivalent). In 2015, beef consumption could drop to 52 pounds per person.
The reason beef consumption is declining, Mark said, is because beef production has decreased as cattle feed costs have increased dramatically in recent years. As a result, the reduced quantities of beef available have translated into record beef prices this year. From January through October, the price of all fresh retail beef averaged $4.93 per pound.
“That’s up 5.3 percent compared to the same time period in 2012. In October, the price of all fresh beef set a new record high at $4.98 per pound. Such higher prices, driven by smaller quantities, have many wondering whether consumers will be willing and able to continuously pay more for beef,” he said.
Mark said consumer demand a valid concern – one that is difficult to project for future years because it involves forecasting changing consumer tastes and preferences. However, available information about beef demand thus far in 2013 – while beef prices were continuously setting new record highs – Mark said would suggest that beef demand has been better than would have been expected.
Consider these facts:
1. The demand for all fresh beef for the first three quarters of 2013 was about 3% higher than the same time period in 2012. That’s based on a demand index that considers both quantities demanded and prices. In Econ 101 terms, it represents an outward shift in the demand curve for beef.
2. The National Restaurant Association reports that its Restaurant Performance Index (RPI) rose to a four-month high in October 2013. While this considers more than beef sales, dining out accounts for 40-50% of consumer beef purchases in the U.S. The RPI was 100.9 in October, which indicates slight expansion in the industry. Overall, the restaurant industry appears to be cautiously optimistic about future sales.
3. Beef and veal exports were 5.4% higher in October 2013 compared to a year ago. In fact, for the first ten months of 2013, beef exports totaled 2.14 billion pounds, an increase of 4% compared to January-October 2012. Beef exports to Japan continue higher, with October 2013 posting a 42% increase over a year ago. Year-to-date, beef exports to Japan are 47% higher than a year ago. Beef exports to Hong Kong and China (Taiwan) continue strong as well. For the year-to-date, beef exports to Taiwan have doubled relative to a year ago, while Hong Kong’s imports of U.S. beef are up 67%. Beef exports to Canada and Mexico, historically among the U.S.’s largest beef export destinations, are 5-6% higher so far in 2013. While many of the U.S.’s beef customers have increased beef purchases this year, exports to South Korea, Vietnam, and other countries have declined this year. Russia continues to import no U.S. beef.
“A number of factors will determine the demand for beef in the year to come, including consumer tastes and preferences, consumer disposable income, prices of competing meats, general economic conditions in the U.S. and around the globe, and foreign exchange rates,” Mark said.
While these are not an inclusive list, Mark said most of these factors have created a bit of a headwind for beef demand in the last year.
“So, given the strength of domestic beef demand at retail and good export market sales in this last year’s challenging market environment, there is reason to be optimistic about beef demand in the year to come,” he said.
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