Beef has returned to its long-held role as king of the meat case, due in no small part to the efforts of seedstock and cow-calf producers over the past 25 years. Back in the mid-1990s, beef was not delivering for consumers largely due to inconsistency, and the industry set out to change that.
Years of careful bull selection and an upgrading of the beef cow herd followed. Ironically, devastating drought from 2010 through 2012 hastened the latter, as ranchers culled their oldest and most inefficient cows. The result was a beef cow herd that was younger and better-performing than for many years.
The drought also substantially reduced herd size, overall cattle numbers, and annual beef production. So, it was no surprise that domestic beef demand (average price versus volume sold) peaked in 2015. What is more important is that as cattle numbers and production increased again, beef demand remained strong, although just below its 2015 peak.
This was true again in 2019 when beef week in and week out has easily been the preferred protein for American food shoppers. Whether it was in a conventional supermarket or at a membership warehouse, beef dominated sales of pork and chicken, even though there were ample supplies of both.
The reason for this is multi-faceted but, in a nutshell, 2019 has seen a happy convergence of the highest-quality beef supply in the industry’s history at exactly the same time that more consumers can afford it. Cattle are now grading 80 percent or higher Prime and Choice and less than 18 percent Select. Just five years, ago the percentages were under 70 percent Prime and Choice and 25 percent Select.
The greater supply of Prime and Choice beef allowed many retailers to upgrade their beef programs, especially when they realized their customers had more money to spend on beef. The latter is a result of a solid U.S., economy, a declining unemployment rate and most notably an increase in hourly wages. The last point has meant that American who previously could only afford to buy ground beef or a pot roast regularly can now afford to buy a T-bone steak whenever they want to.
Strong domestic and export demand for beef in October was the main reason why cash live cattle prices at the end of the month finally exceeded the levels they had been at the week of the Aug. 9 fire at Tyson Foods’ Holcomb, KS, beef plant. November beef sales remained solid, despite the usual plethora of cheap turkey for the Thanksgiving holiday, and December holiday beef sales might be the strongest in some years.
A new analysis from the Livestock Marketing Information Center (LMIC) confirms the strength of beef demand in recent years. Third quarter beef demand posted year-over-year gains in the Meat Demand Index that LMIC calculates, it says. The index is a measure of changes in domestic consumer demand. Retail beef demand, measured by USDA’s retail All Fresh beef price, increased less than 1 percent over last year, it says.
Retail beef demand is currently in an upcycle after 2008-2013 showed values below 100, says LMIC. Since 2014, the index for the third quarter has ranged from 102 to 110, with 2019 being the highest since 2015. Annual retail beef demand has been trending smaller than the last peak of 2015, reading values of 108 and 107 in 2016, 2017, and 2018. This year, the annual index should show a slightly higher figure based on the first three quarters, says LMIC.
LMIC’s calculation of its demand index does not take into account that retailers have priced beef aggressively all year, with a lid on everyday prices and plenty of featured items each week. The result is that the All Fresh price has been close to year-earlier levels. For example, the October price averaged $5.77 per pound, up 1.6 percent on a year ago.
Retailers could have offered beef at higher prices, which would have raised LMIC’s demand index. Instead, they chose to keep prices almost flat with last year and sell even more beef. That has been great news for beef-loving Americans. With beef production expected to increase 2 percent in 2020 from 2019, retailers will continue to price beef aggressively and consumers will benefit even more.
This positive demand trend also shows that consumers appreciate value (quality versus price) above all other attributes. They don’t seem to care where the beef comes from. Yet that did not stop U.S. Sen. Jon Tester (D-MT) in early November from introducing a Senate resolution to support reinstating mandatory country-of-origin labeling (mCOOL) for beef and pork. This came despite a new assessment from Kansas State University economists that mCOOL of fresh meat in its six years of existence had no impact on consumer demand. — Steve Kay
(Steve Kay is editor/publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)