Derrell Peel says beef producers often ask him, "will beef be priced so high that consumers will quit buying beef?"
Peel, who is Oklahoma State University's Extension livestock marketing specialist, answers "I don't believe there is much danger the consumer will entirely quit eating beef."
He adds that the beef industry has many different products and Peel thinks the question is more one of how consumers will adjust the mix of products to their total expenditure on beef.
Peel says there is understandably a lot of concern about the beef demand in the coming months. He believes the expected decrease in beef production this year will translate to a 3.3% decrease in domestic per capita supplies. The decrease could be even sharper in 2014 with consumers potentially facing another 5% decrease in domestic per capita beef supplies.
CattleFax is predicting a 2% decline in per capita beef supply this year and a 2-point decline in wholesale beef demand. It also predicts a 12-cent increase this year in average retail beef price.
Peel and the CattleFax analysts say the pressure for higher wholesale and retail beef prices will continue to grow through 2014, especially if rain returns to the Plains and beef herd rebuilding begins further cutting beef supply.
Peel adds that one of the ongoing concerns is the slow recovery of beef demand from the 2009-2010 recession. Middle meat demand was weakened the most as consumers switched from steaks to hamburger and other value cuts.
In that process, a higher percent of total carcass value was borne by the end meats, such as chuck and round portions of the carcass. In 2011 and 2012, middle meat values advanced along with end meat values, thus maintaining the relatively large contribution of end meats to total value. Although it has been very slow beef demand has recovered from the depths of the recession, Peel says.
The All Fresh beef demand index provided by the Livestock Marketing Information Center (LMIC) shows significant recovery in the index from the 2010 lows. The 2012 annual beef demand index level is near levels not seen since 2008. The beef demand index for the fourth quarter of 2012 posted a sharp jump to the highest levels since the fourth quarter of 2007.
Peel says, "While beef demand is increasing, it is very likely not increasing fast enough relative to price pressure from falling beef supplies in 2013 and 2014. Retail beef prices will undoubtedly push to new record levels in the next two years. Several factors will influence exactly how those price increases will be manifest in various beef markets in the coming months."
He says the availability and price of pork and poultry will impact beef price increases. Both the pork and poultry industries have resisted production cutbacks. Production of both pork and poultry are currently forecast to be very close to unchanged year in 2013 over 2012. CattleFax predicts pork down 2/10 of a percent and poultry up 4/10 of a percent this year. These relatively large supplies of pork and poultry will temper beef price increases as they give consumers readily available protein options.
Exports should improve.
Peel says international beef trade will impact domestic beef markets by changing both the net available supply of beef in the U.S. and by changing the mix of products in the U.S. market. Strong hamburger demand and higher prices in the U.S. market will likely support increased beef imports, especially from Australia and New Zealand, which are major suppliers of beef trim. Beef imports from Mexico, Brazil and Uruguay were also up in 2012.
On the export side, the recent Russian ban on U.S. beef and pork could hurt 2013 exports to that market. However the opening of the Japanese market to meat from animals up to 30 months of age will increase access in another market. CattleFax analysts say the Japanese change should increase beef exports to Japan by 27%. Japan is an important market for middle meats but the devaluation of the Japanese yen versus the U.S. dollar in recent months may temper the pace of that nation's expanded beef exports.
U.S. beef consumers will continue to adjust beef expenditures by adjusting the mix of products consumed. Consumers are likely to continue reducing the frequency and quantity of consumption of expensive middle meats, as USDA data says they have for many years now.
This decrease in consumption may be compounded by restaurants reducing portion sizes in an attempt to reduce product cost and thus maintain margins with fewer menu price increases.
Peel says, "There is concern that beef demand, especially steak demand, is becoming more of a special occasion meal rather than a regular part of beef consumption."
He wonders whether such consumer attitudes about beef have changed permanently.
Then he adds: "One thing is very clear. With steaks carrying a premium price the next two years or more, it is imperative that the beef industry do everything possible to ensure premium quality as well."
"Beef has always been significantly more expensive than pork and poultry because it enjoys strong preferences for the flavor and tenderness of beef. Beef does not have to be the cheapest meat but it does need to provide the best value relative to price in order to preserve beef demand at record price levels."