Beef demand in the third quarter was 8.7% more than the same quarter in 2014, according to the recent Kansas State University (KSU) All Fresh Beef Demand Index (AFBDI).
“To appreciate the AFBDI patterns, note per capita consumption increased by 2% and real prices increased by 6% in the third quarter,” says Glynn Tonsor, KSU agricultural economist, in the most recent In the Cattle Markets. “Any time we observe both consumption and price increases, we know demand improved as consumers clearly were willing to pay more for beef than in the past. In economic jargon, we know the demand curve shifted in a positive way for the industry. This strong demand estimate suggest the widely-stated concerns about demand strength in September may have been overstated or at least were offset by prior strength in July and August.”
The AFBDI is a backward glance at consumer consumption preferences, utilizing government estimates of past consumption and retail prices.
For further understanding, Tonsor points to the Food Demand Survey (FooDS) published by Oklahoma State University. It is a monthly survey of at least 1,000 consumers—weighted to reflect the U.S. population—which poses a series of product-selection questions, used to derive estimates of how much consumers are willing to pay for eight specific food products, including steak and hamburger.
“Accordingly, this approach measures stated preferences as directly gathered from the consumer,” Tonsor explains. “By design, it attempts to look at the current month’s demand strength, does not require any assumptions regarding price elasticity estimates, and offers less aggregated estimates of demand.”
With that in mind, consumer willingness to pay (WTP) in July declined for all items measured with FooDS, especially non-meat items. For perspective, the WTP for steak declined 7.89% in July compared to June. The WTP for hamburger declined 0.24%.
August was just the opposite. The WTP increased for all items measured with FooDS. September was similar to July.
“The KSU index and FooDS each offer valuable demand information and have their own set of strengths and drawbacks,” Tonsor explains. “Ongoing research will more finely assess the relative merits of each approach.”
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