February 4, 2016
Last week’s Industry At A Glance highlighted quarterly beef demand since 1990. As review, the beef industry has enjoyed sustained improvement in demand since the near-term low occurred during the third-quarter of 2009. And since then, beef demand has improved almost 25% and the current 12-month moving average now stands at nearly 93 – the best mark since 1992.
However, the beef demand index can prove to be somewhat elusive. The question that generally arises involves its relationship to, and subsequent influence on, cattle markets. Before we get to that question, it’s important to remember that price is always a function of both supply and demand. And then, of course, there’s any number of short-term variables that also drive markets.
Nevertheless, this week’s graph addresses the broader question around demand’s influence on the market. To that end, the illustration clearly reveals a positive relationship between the beef demand index and fed cattle prices. While the index explains only one-fourth of the variation in fed cattle prices (the remainder attributed to the various factors discussed above), the trend remains solidly positive. As beef demand improves, it drives stronger spending at the consumer level – and cattle prices follow in a positive direction. For more insight on the relationship between beef spending and fed cattle markets see: Fed Market vs. Annual Beef Spending.
Bottom line: the relationship underscores an important principle. Beef demand matters and our focus upon the consumer ultimately influences the production sector. How do you perceive the relationship between beef demand and long-run market trends in the industry? Where do you envision beef demand headed in the future – will it continue to improve, or will future gains be harder to come by?
Leave your thoughts in the comments section below.
Nevil Speer is based in Bowling Green, Ky., and serves as vice president of U.S. operations for AgriClear, Inc. – a wholly-owned subsidiary of TMX Group Limited. The views and opinions of the author expressed herein do not necessarily state or reflect those of the TMX Group Limited and Natural Gas Exchange Inc.
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