The U.S. beef industry lives or dies by how well beef sells in grocery stores and in restaurants. Retail demand right now is stronger than it has been in quite a number of years. Sales have more than recovered from the challenges in 2014 and 2015 when retail prices reached record high levels because of tight cattle and beef supplies. This was the unfortunate consequence of drought-induced liquidation in prior years.
Strong retail sales are especially important as restaurant sales have been weak all year. Various indicators show that traffic at restaurants remains mixed. Traffic at high-end restaurants and hamburger chains is robust but traffic is down at mid-tier chains. This is also mixed news for the beef industry. It depends on white tablecloth restaurants to buy its most expensive cuts and burger chains to buy its grinds. Beef sales as a proportion of total food sales at mid-tier restaurants vary considerably. But the industry depends on barbecue chains to buy briskets and ribs, and on sandwich chains to buy other cuts.
Foodservice traffic in the second quarter remained tepid, according to information from NPD Group’s restaurant industry research. The latest quarterly negative trend represented the sixth consecutive quarter of weak traffic. The U.S. foodservice industry has not experienced six quarters in a row of no traffic growth since the recession of 2008-09, says NPD.
The hardest hit segment was among the midscale/family dining restaurants, with midscale concepts seeing a 4 percent decline in traffic for the quarter versus the same quarter last year, according to NPD’s CREST data. Likewise, casual concepts reported a 3 percent drop in visits for the quarter compared to the previous year. Even quick service restaurants (QSRs) reported lackluster traffic that was flat overall. But this was offset by robust traffic increases across QSR burger and fast-casual restaurants, as quarterly visits spiked by 13 million and 77 million, respectively, for the quarter, says NPD.
Retailers though have featured beef aggressively since the start of August, in large part because wholesale boxed beef prices fell below year-earlier levels. This showed up in August retail prices. USDA’s All Beef price for August averaged $5.79 per pound, down three cents from July and the same as in August last year. But Choice beef prices averaged $5.97 per pound, down 13 cents from July and down 0.8 percent from last year.
This might not seem a big decline but it’s important when one considers that Choice beef accounts for 73-74 percent of all the graded beef the U.S. industry produces. Feedlot cattle have been performing and grading more impressively this summer than for a long time. They are grading about 80 percent Prime and Choice, a testament to improved genetics and cattle feeding techniques.
September average retail prices were likely to be lower again, as retailers continued to feature beef strongly because sharply lower wholesale prices had maximized their beef margins. Strong Labor Day retail beef sales in fact offered the industry a springboard for a modest recovery in cash live cattle prices which had been languishing in the $105-106 per cwt. range. The third week of September saw a welcome rally to an average $108.50 per cwt., basis USDA’s 5-area steer price. Prices were likely to be at least steady last week.
Retail beef sales will be even more important the rest of the year, as the U.S. industry is forecast to produce slightly more beef in the fourth quarter than last year. Right now, the futures market is suggesting that markets at home and abroad can absorb this beef without a hit to live cattle prices. The October and December live cattle contracts took a nosedive last Monday and Tuesday, falling 330 points and 395 points, respectively. But the December contract was still at a hefty premium to cash prices.
This could change though if beef sales slow as the quarter progresses. Beef will face more competition from pork now that Seaboard Farms’ new pork processing plant in Sioux City, IA, has commenced operations. That’s why daily hog slaughter was at a record 460,000 head per day early last week.
If you want cheap meat however, you should visit South Africa, which I did the second and third weeks of September to look at its livestock and meat industry. One retail chain I visited had rump and Porterhouse steaks at $4.08 per pound, fillet steaks at $7.79 per pound, and Texan (flank) steaks at $3.03 per pound. Lamb ribs meanwhile were priced at $4.05 per pound. Just like in the U.S., pork and chicken was even cheaper, and seafood features proliferated.
I sampled all of the proteins either in restaurants or in private homes and they were all of excellent eating quality. South Africans love their meat and especially their braais (their word for barbecuing), where they cook a wide variety of sausages. For something different, I ate crocodile at one restaurant. But to my disappointment, it tasted just like chicken. — Steve Kay
