Increased production challenges beef demand

Increased production challenges beef demand

“As beef production increases, beef prices are coming down from record levels at the wholesale and retail levels,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “Monthly average boxed beef prices peaked at $240.25 per cwt for Choice in May 2015 and at $249.34 in April 2015 for Select.

Depending on your perspective, beef demand remains fairly strong, relative to recent history, or it’s beginning to waver even as retail beef prices decline.

Beef demand declined three of the last four quarters, according to the All-Fresh Beef Demand Index (AFBDI) calculated by agricultural economist Glynn Tonsor, at Kansas State University. The decline was marginal in the last quarter of last year (-0.97%) and in the first quarter of this year (-0.49%).

In the second quarter, though, it declined 3.07%. Other than a similar decline in the first quarter of 2014, that’s the most significant quarterly decline, year to year, since the first quarter of 2010. Since then, the AFBDI declined in only four quarters, counting the last three.

The Choice Retail Beef Demand Index is similar, also declining year-to-year for the last three quarters: -3.71%, -0.67% and -3.32%, respectively.

“This year’s ample supply of beef is primarily driven by year-over-year increases in commercial cattle slaughter (4% more) and heavy dressed weights (7 pounds heavier),” explain analysts with USDA’s Economic Research Service (ERS), in the August Livestock, Dairy and Poultry Outlook.

“Forward projections show a continued gain in beef production into 2017 as the increased availability of slaughter-ready cattle and generally heavier carcasses result in more beef," ERS analysts say. "Annual beef production is forecast to reach 25 billion pounds in 2016, up 5.3% from last year. Total commercial beef production in 2017 is forecast 3.4% higher at nearly 26 pounds”

“As beef production increases, beef prices are coming down from record levels at the wholesale and retail levels,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “Monthly average boxed beef prices peaked at $240.25 per cwt for Choice in May 2015 and at $249.34 in April 2015 for Select.

“In the first half of 2016, monthly Choice boxed beef prices averaged 12.6% below year-earlier levels with Select boxed beef prices averaging 14.5% below 2015 levels. Choice retail beef price peaked in May 2015 at $641.20 per cwt and the All Fresh beef retail price peaked at $614.70 in July 2015. In the first six months of 2016, Choice retail beef prices averaged 4.1% below year-ago levels, while All Fresh retail beef prices were down 4.3% year over year.”

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For those frustrated by the slow decline in retail beef prices, relative to wholesale prices, Peel says several factors are responsible. Among them, he explains, “Changes in beef production do not translate directly into retail beef supplies. The domestic retail beef supply is up only 2.8% when production is adjusted for beef imports and exports. This is due primarily to decreased beef imports in 2016. Retail beef price adjustments also reflect the impact of competing pork and broiler supplies.”

For perspective, Peel points out domestic beef production through the first half of this year was 5.3% more than last year. For the year, he says production is expected to be 4.0-4.5% more.

 

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