The turkey’s been eaten, football has been watched or played, and the family has gone home. So, what does that mean? ’Tis the season for market outlooks!
During the recent Range Beef Cow Symposium held in Mitchell, NE, Jim Robb, senior agricultural economist with the Livestock Marketing Information Center, told tales of markets present and future.
He started with the now that will impact the then: Consumer sentiment and beef demand.
“The U.S. economy on the consumer side—unemployment, how the consumer feels, consumer wages—are all very positive,” he reported, citing recent consumer sentiment reports showing steady growth in consumer confidence in the economy.
Consumer sentiment and things like wages are important to the beef industry because consumers generally improve their food, often starting with upgrading their proteins, when they have disposable income. Conversely, economic concerns among consumers can result in retrenchment and scaling back down the proverbial protein ladder.
“On the demand side, this big-picture demand component that’s going to drive consumption of beef in restaurants and at home is very positive,” Robb continued.
He stressed that reports of beef consumption—which have been falling over the past years to an estimated 57.3 lbs. per capita in 2019—are not reports of declining beef demand. Consumption only measures how much beef is available for people, not how much they might want it.
“Demand has two components: price and quantity. How much they eat and how much they are willing to pay for that product,” Robb summarized.
“Even though [consumers] have eaten a little bit less than they did a few years ago, they are paying higher prices for this and fortunately that has more than compensated for that. The total income from beef has actually increased. Consumption has gone down, but the prices have gone up to more than compensate in terms of total income for the sector. This is really important.”
Despite the U.S. producing more beef in 2019 compared to 2018 (an estimated 27.7 billion pounds vs. 26.9 billion pounds), and exported only slightly more so far this year compared to last (2.35 billion pounds vs. 2.33 billion through September, respectively), almost all cuts of beef tracked by the USDA are selling for a higher average price this year compared to the same time last year.
For example, according to data through October (most recent complete), the average retail price for a pound of ground beef was $4.26, up 17 cents compared to the same time last year. Similarly, all beef steaks sold at retail averaged $7.67/lb. in October 2019, compared to $7.60/lb. last year.
Assuming the economy does not retract, or consumers lose confidence in it, domestic beef demand is expected to continue.
International demand is also projected to grow going forward. According to Rabobank’s fourth quarter report, beef “will see a continuation of strong import demand from China in 2020.”
As a result of the fallout from the African swine fever devastating the Chinese hog industry and the subsequent loss of protein production, China has been buying more pork and increasingly more beef from around the world. This Chinese demand for protein has had and will likely continue to have an impact on U.S. beef.
“The key is that, even if Australia’s drought continues, China is sucking more and more beef out of Australia and New Zealand that it’s a higher price to go to China than it is to come here,” explained Robb.
With our primary suppliers of lean manufacturing beef getting more money sending it to China rather than to the U.S., imports of beef are expected to decline in 2020. USDA, via the most recent World Agricultural Supply and Demand Estimates report, expects beef imports to fall to 2.87 billion pounds, down from this year’s estimate of 2.96 billion pounds.
This dynamic is expected to pressure U.S. burger chains—the main users of imported lean beef—to find domestic supplies, which could in turn help cull cow prices in the U.S.
Robb cautioned his audience at the Range Beef Cow Symposium about what he saw as the most important issue and headwind for the beef industry going forward: production.
“It has nothing to do with the cattle business; it has to do with pork and chicken,” he said. He described the broiler industry’s growth as “going gang busters” at a speed unlikely to slow until the fourth quarter of 2021 and noted that the pork industry has been wildly successful in its effort to get more piglets per sow.
“If we look at total red meat and poultry, this is the headwind,” Robb cautioned. This is happening at the same time the cattle cycle is beginning to contract, meaning there will be less beef available to consumers while demand is high, suggesting retail prices will continue to climb. High-priced beef sitting next to ever larger supplies of low-priced alternatives in the meat case could become more of a challenge going forward.
“So, what do we hope?” Robb asked rhetorically.
“We hope the economy keeps going and [consumers] can afford to keep buying beef because as soon as the economy slows down, there’s way more of this other stuff and consumers tend to trade down as the economy slows down.
“Right now, so far so good. But if we look ahead, especially to 2021, if the U.S. economy slips into recession, we’re going to have a few problems. This is the headwind potentially for the beef industry.” — Kerry Halladay, WLJ editor