During his quarterly industry outlook webinar last week, co-sponsored by BEEF, Kansas State University ag economist Glynn Tonsor displayed a cartoon he had copied out of a recent issue of the Aberdeen (SD) American News. Two guys were standing around a grill and one of them was holding a skewered $50 bill over the coals. “It’s cheaper than beef,” he tells the other man.
Such a cartoon would have been noticeable enough had it appeared in a newspaper on either coast, Tonsor said. The fact that it was printed in a South Dakota newspaper really emphasizes the situation that beef producers—and beef consumers—find themselves in, he told webinar attendees.
Tonsor measures beef demand with an all-fresh beef demand index. The index was down in the first quarter of 2014 compared with 2013, the first time it showed a year-over-year dip since the third quarter of 2010, as the U.S. was coming out of recession.
While consumption is not a measure of demand, it is a factor in the equation. U.S. per-capita consumption of beef fell in the first quarter of 2014, he says, because the industry produced less and exported more. When netted out, the remainder is what was available for domestic consumption. “Divided by population, we had less beef consumer per person in the U.S., to the tune of 5.6% less than the first quarter of 2013.”
The inflation-adjusted all-fresh beef price was actually up 4.9% for the first quarter at $5.23/lb., he says. That almost 5% increase was not enough to offset the decline in volume for him to say demand held its own or increased.
“What needed to have occurred was to have a 6.8% increase in price for me to say demand was flat. So stated differently, given the notable volume reduction, I anticipated close to a 7% increase in price, if the people we expected to pay higher prices actually did. The fact that prices only went up by 4.9% means some segment was more price-sensitive than we anticipated, or some segment switched to a competing meat or something along those lines.”
Tonsor says the 4.9% increase in price is the undertone to the cartoon and it’s why the media is talking about historically high beef prices. “But that in itself doesn’t tell us about beef demand. We have to understand the net impact and combination of the volume being consumed going down and prices going up and ask ourselves if the price is going up enough given the volume that’s being reduced. And for this first quarter of 2014, the answer was no. We needed prices to go higher yet.”
USDA is projecting 53 lbs. of beef will be consumed per person in 2014, a 2-lb. drop from 2013. “Using my same beef demand indices calculations, if we have that amount of reduction in consumption, and if a price of $5.29/lb. is realized, which would be a little over 7% increase from 2013, I would be saying 2014 demand was equal to 2013. Yes, the volume/person consumed went down, but the price went up enough to offset that,” he says.
But say we’re looking at the data a year from now and it shows that the annual price paid for beef was $5.10/lb., for example. In that case, beef demand would have declined in 2014, he says. “The story there would be we failed to get that full 7% increase in price in 2014 that I think we need, given the volume that’s being removed from the market,” he says.
“If instead we have that 2-lb. reduction in consumption, but say price goes to $5.50, I would say we had a positive 2014 for beef demand. That would mean the public paid more. Yes, there were fewer pounds and a smaller segment of the public was consuming beef, but those who remained consumers paid a higher price than we anticipated. That would be a good story.”
What happens the remainder of 2014 is a story yet to be told. So far, consumers appear willing to keep beef front and center. “We’re going to have historically high prices in 2014,” Tonsor told webinar attendees. “The question remains just how high it will be.”
You Might Also Like: