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Retail beef demand indexes need our attention

Current demand indexes treat all beef the same. What needs to change to make them more useful in the future?

Chances are you’d keep your powder dry if offered a load of 5-weight calves without knowing the sex, condition, breed type, weighing conditions, relative quality, location, etc.

Yet, that’s exactly the kind of sketchy road map the beef industry uses to navigate the road of consumer demand in determining the value of specific beef components to consumers in particular parts of the country, purchased via specific market channels.

Here’s the problem: Current demand indexes treat all beef the same.

The most-used beef demand indexes in current use aggregate the volume of beef disappearance from both retail and food service, and use simple average in-store product label retail prices, rather than actual grocery store transaction prices adjusted for volume. The infrequency of data reporting also means a lag of at least three months between consumer purchases and the demand picture.

“They reveal nothing about heterogeneity in demand response across market channel, U.S. region, or product type,” explains Glynn Tonsor, a livestock economist at Kansas State University (KSU). “Having beef demand indices that measure actual consumer purchases by market channel and use volume-weighted prices actually paid by consumers are more accurate and precise than existing beef demand indexes. Furthermore, having indexes that are available to update more frequently and can be dissected by product or market region can be especially informative about where demand is changing most.”

Tonsor’s observation is substantiated by the recent beef checkoff-funded study, Creating and Assessing Candidate Food Service and Retail Beef Demand Indices. For the study, Tonsor and KSU colleague Ted Schroeder analyzed existing indexes, along with some they built to explore the possibilities — more than 100 indexes in all.

“The reason that the average producer should care is, consumer demand dictates how many dollars are available for the total industry,” Tonsor says. “If consumer demand is going up, then we know wholesale beef values are higher, we know fed cattle prices are higher, therefore we know all feeder classes are going to be higher.”

Recommendations from the report call for the industry to build and maintain retail beef demand indexes, both national and regional, along with cut-level indexes for the chuck, round, loin and ground beef.

One example of the value of regional indexes is what Tonsor and Schroeder uncovered relative to the substitution patterns of competing meats.

“In the past, we just assumed that pork and poultry have an impact on demand as competing meats,” Tonsor says. “While the national assessment found pork price to impact grocery-store beef demand, consistent with expected substitution effects, a regional assessment reveals that grocery store beef demand in the South and Midwest is sensitive to pork prices, while beef demand in the Northeast and West is not. Stated differently, the role of competing meats in shaping beef demand varies regionally.”

Such knowledge provides a host of opportunities, including the ability to invest industry dollars for retail beef featuring more strategically.

“As beef demand changes over time, insights from regularly updated demand indices would provide the entire industry a barometer of demand strength,” Tonsor explains.

These indexes and their maintenance come at a cost. That seems to be the rub currently. So far, no entity or coalition has assumed the mantle. If you believe this kind of added precision is valuable, mention it to anyone you believe has input to championing the cause.

“Beef demand tells us how consumers view our product. Ultimately, every dollar comes to the beef industry from the consumer,” Tonsor emphasizes. “Understanding beef demand from the consumer’s perspective is essential. If we understand more about what drives demand, then we have the opportunity to increase the value of specific beef products to the consumer.”

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