January 14, 2020
Beef demand in 2019 was better than anticipated and last week’s column highlighted the importance of beef quality to beef demand: “Consumers want the best beef you can produce and are willing to pay for it.”
The column further noted, “There was a day when many argued that beef would price itself out of business…high prices would create demand destruction and indirectly generate increased market share for pork and poultry.”
To the end, it’s important to remind ourselves about the principles around beef demand. Too often, demand gets confused with consumption – the latter being simply a reflection of production and disappearance. It doesn’t reflect purchasing decision-making by consumers or how consumers perceive the price/value relationship.
If consumers don’t perceive beef as a favorable product, there’s little pricing power to clear the market of existing supply, regardless how low that might be. On the other side, as supply gets bigger (beef products possess less scarcity), there’s inherently downward pricing pressure.
All that brings us to this week’s graph. It highlights the relative retail price relationship between beef versus pork and poultry, respectively. Over time, there’s been a clear strengthening on both fronts.
Moreover, beef has been able to maintain its relative price advantage ever since the production lows in late-2014 and early-2015. There’s substantially more product available since those production lows, but the beef industry has held on to its pricing power.
And it harkens us back to the importance of beef quality discussed in the previous week. Consumers continue to perceive beef as the most favored option in the marketplace, largely due to improved quality and consistency over time, and willing to pay up for it in the marketplace. And in the face of a stronger economy, that favored position could ratchet up even higher.
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