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Beef demand brings rewards

Photo courtesy of Beef Checkoff Zesty Cheeseburger
Thankfully, the beef business managed to escape the ugly outlook of the late 1980s and early 90s. The hard work put into reversing downward demand trends means you can reap the rewards.

Imagine calves today being worth $50 per cwt less and fed cattle bringing $20 less. That would be the reality if cattle producers failed to reverse 20 consecutive years of declining consumer beef demand, according to Randy Blach, CattleFax CEO.

“Demand dropped 50% from 1979 to 1998,” Blach reminded those attending the CattleFax Outlook Seminar during the Cattle Industry Convention this February in New Orleans. “We lost 400,000 producers from our industry during that time period.”

Through the late 1980s and early 1990s, Blach explained that the accumulated profitability for the entire industry amounted to between $50 and $100 per head. That’s what was left to divvy up among the various industry sectors, from cow-calf producer to beef packer.

“That’s not a sustainable business,” Blach said. “Then, we finally started listening to the consumer.”

Specifically, he’s talking about the conscious industry decision to increase carcass quality and the massive improvement that ensued. The percentage of fed cattle grading Choice and Prime was about 50% in 2000. Today, approximately 80% achieve those grades.

Moreover, CattleFax analyst Kevin Good pointed to growing international demand for U.S. beef, which is built, in part, on the unique position it occupies as the world standard for high-quality, grain-fed beef.

Through November of last year (the most recent data available), U.S. beef export value broke the full-year record of 2017 at $7.63 billion, according to statistics released by USDA and compiled by the U.S. Meat Export Federation.

At the time, export value was 16% more year-over-year on 8% more volume.

Beef export value per head of fed slaughter was also on a record pace, averaging $320.72 during the first 11 months of 2018 (up 14%).

Plus, exports mean less beef to market domestically and more price support overall.

Good explained the U.S. produced 3.2 billion more pounds of beef from 2015 to 2018, as the U.S. beef cow herd expanded. But U.S. beef exports increased, while U.S. beef imports decreased.

“The balance of trade improved by 1.3 billion pounds,” Good explained. “So, in reality, the balance of trade took 40% of our production increase off of the domestic market, kept per capita supplies manageable and allowed us to have a market that remained elevated from a historical standpoint.”

The same goes for this year amid what is expected to be record-large U.S. beef production — about 500 million more pounds compared to last year.

CattleFax projects U.S. beef exports 6% higher this year and imports 4% less; this creates about a 10% advantage, accounting for about 300 million pounds of the increased beef tonnage. Domestic annual population growth of 0.7% accounts for most of the remainder. So, per capita domestic beef supplies this year should be similar to last year.

These days, Blach says accumulated industry profitability each year is $200 to $500 per head. That doesn’t mean every sector is always profitable. It does mean, as seen in recent years, that every segment can be profitable at the same time.

Consumers changed in the 1980s and 1990s. They wanted more beef quality and consistency, though they may not have defined it in those terms.

“We have a changing consumer today — Generation X and the millennials. These generations are going to have more impact on consumer preferences going forward,” Blach noted.

“Are we willing to make the next change? Are we willing to do what we need to do to ensure we’re providing a product with the attributes important to them? If it’s source-verified, traceable, whatever it may be?

“Whatever those attributes are, I think it’s important we don’t make the same mistake again and have to live through the same scenario that we did from 1979 to 1998,” he said.

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