While Memorial Day weekend is typically a benchmark for the beef industry as the first big weekend of the grilling season, we cannot forget it is primarily and most importantly, the Federal holiday designated to honor Americans who lost their lives while serving in the U.S. Armed Forces.
As I sat in my office assessing the beef demand situation going forward with the Memorial Day weekend rapidly approaching, the Choice beef cutout hit a new record high of $359.59/cwt. This is 15% higher than the Choice cutout on the same day a year ago and 8% higher than April 21. While this is may be partly the result of last-minute buying for the weekend in a declining supply situation, I also think this is further evidence that American’s demand for quality U.S. beef remains strong and interestingly, the high-end cuts have been notable drivers to this current market. On the supply side, beef production from Jan. 1 through May 17 is down 3% from a year ago. However, as I have brought out in previous articles, that smaller supply is only one-half of the analysis.
While the current market is solid evidence for the demand outlook, the weeks beyond the Memorial Day weekend and heading toward the 4th of July will be the critical time for truly assessing longer-term strength of beef demand. Certainly, if there are indications that consumers are pulling back on spending as indicated by surveys and government data, the question is then whether consumer beef buying will take a hit. If beef prices remain strong as the number of cattle heading from the feedlot to the packing plant continues to decline, we will have our answer.
Simply put, the focus is now on demand and as we know, weaker U.S. consumer demand will not support current beef prices. This is not to ignore export demand which plays a critical role in U.S. beef and cattle prices, but 90% of U.S. beef production is purchased by U.S. consumers. There may be shifting from higher-cost steaks to ground beef as well as competitively priced pork and chicken, but the key to beef market performance will be American consumers buying beef at the retail meat case or ordering a steak or hamburger in the restaurant. This will be the key driver to the market.
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