Nalivka: Considering Beef Demand

Increasing consumer demand for beef played a role in higher than expected cattle prices during the early months of 2018. ( . )

Demand will be critical to market performance as fed cattle numbers increase into the summer.  I have said that more than once over the last several months.  However, after looking at 1st quarter market performance, I think the outlook could be a lot more positive than the increased supply might otherwise portend, particularly with that added kicker as consumers buy those juicy Choice ribeye steaks or burgers to grill.

The 1st quarter’s performance got the industry off to a good start and at a time of the year when seasonal demand is not that good.  Taking a look at first quarter data, my estimates for U.S. beef consumption (production + imports – exports) was 2% higher than the prior year.  At the same time, consumers paid a 1% higher retail price for that beef in the supermarket.  This left 1st quarter retail beef expenditures up 2% from a year earlier.  When adjusted for inflation, those beef expenditures were about even with a year ago.  Considering a 3% increase in beef production coupled with the competition from 4% more pork and 1% more chicken, 1st quarter beef expenditures represented solid demand for that time of the year.   

Further up the supply chain, wholesale beef prices during the 1st quarter were 6% higher than a year earlier while packers paid 2% more for Choice steers than a year ago.   Feeder cattle prices for the period were up 13% from the prior year.

Trade represents the other part of demand and it may pose one of the greatest uncertainties with the talk of tariffs becoming reality.  But, at the same time I think it is easy to get whipped up into a frenzy when the word tariff is even mentioned.   Beef exports were up 12% from prior year during the first quarter.  The value of those exports was up 19% from prior year.  The question is: will the added cost of a higher tariff on U.S. beef in key export markets have a significant negative impact?  I don’t think that the answer to that is question is cut and dried. 

In short, demand for increased U.S. beef production both globally and at home and has been quite positive to the market.   While we are facing increased cattle numbers as the 3rd quarter approaches, we are also headed into the summer grilling season and the evidence for U.S. consumer demand so far I think suggests limited downside pressure from supply.      

John Nalivka is president of Sterling Marketing, Inc., Vale, oregon.      

Comments