Retail Demand For Choice Continues To Weaken

Continuing a trend that began in 2005, U.S. consumers' demand for Choice beef at retail declined again in the first quarter of 2006

Continuing a trend that began in 2005, U.S. consumers' demand for Choice beef at retail declined again in the first quarter of 2006, says Jim Mintert, Kansas State University ag economist. Mintert says per-capita beef consumption at retail reached 15.8 lbs. (preliminary estimate) during the January-March quarter, which was a 1.4% increase compared to a year earlier. But the modest domestic supply increase was associated with a 5.75% decline in the inflation-adjusted Choice retail beef price, compared to January-March 2005.

Mintert says the combination of a relatively sharp decline in inflation-adjusted Choice beef prices at retail and a small domestic beef supply increase means domestic consumer demand for beef declined again. Preliminary beef demand index calculations (using 1980 as a base) reveal the index value for the first quarter of 2006 was 55.76, down 4.5% compared to the year ago index value of 58.39.

Primarily because of strong demand gains that occurred during 2003 and 2004, beef demand this winter was still 4.6% higher than the first quarter of 2003, and 16.5% higher than the first quarter of 1998, when the beef demand rebound was just getting underway. Still, the recent ongoing slide in domestic beef demand is troubling, he says.

Looking ahead, data from this winter confirm that turning around the recent decline in domestic beef demand won't be easy. He says the beef industry benefited from consumer interest in low-carb diets from the late 1990s through 2004. Consumer interest in those diets has waned, however, and the industry will have to focus its attention on product attributes such as quality, convenience, and nutrition. And it will have to do so in a time frame when domestic beef production is increasing cyclically and competing meat supplies are large.

Last week was another down week for slaughter cattle prices. Slaughter cattle prices declined $2/cwt. (live weight) in Kansas, while dressed weight prices in Nebraska declined $0.64/cwt. Slaughter cattle prices haven't been this low since late August 2005, Mintert reports.

Thus far in 2006, Kansas slaughter cattle prices have averaged $88.69/cwt., which is still 4.2% higher than the year ago average of $85.11/cwt. Similarly, dressed weight slaughter cattle prices in Nebraska have averaged $140.62/cwt. so far in 2006, 3.4% higher than the year ago average of $136.04/cwt.

Feeder cattle prices in Kansas last week were steady to slightly stronger, whereas prices in Nebraska weakened somewhat. A 750-lb. steer placed on feed at last week's Kansas average price of $106.64/cwt. would likely require a sale price near $86/cwt. in mid-September to break even. In contrast, the April 24, 2006, settlement price for October live cattle futures implies a Kansas cash slaughter cattle price of about $79/cwt. in mid-September. Mintert says feeder cattle buyers continue to be very optimistic compared to live cattle futures market traders. -- In the Cattle Markets newsletter

TAGS: Beef Quality