Closing the Gate: Consumption Down, Demand Up

As cattle prices surged this past year, profitability reached into every corner of our industry. Record-high prices were established every quarter, possibly a once-in-a-lifetime event.

Smaller beef supplies—the result of the smallest inventory in 60 years—get much of the credit for historic price levels, but consumer demand also plays a significant role. Despite rising retail beef prices, economists say demand remained strong and even grew during 2014.

Surprised? Many cattlemen are, as the claim of robust demand doesn’t jive with beef consumption. How, many wonder, can demand increase when per capita consumption is clearly declining?

Beef demand is not a true reflection of per capita beef consumption. Rather, per capita consumption is a measure of production, since we consume all that is produced.

Over the past 40 years, per capita beef consumption has trended down. In 1976, Americans ate about 195 lb. of total red meat and poultry, of which 94 lb. (48%) were beef. In 2014, Americans consumed slightly more red meat and poultry—200 lb.—but beef’s share declined dramatically to 54 lb. (27%). This year USDA expects beef consumption per person to decline another 1.3 lb.

“Per capita consumption is simply production divided by resident population and provides little information regarding beef demand when considered independently from prices,” says Glynn Tonsor, Kansas State University.

Tonsor publishes annual and quarterly retail beef demand indices at www.AgManager.info. The beef demand index is calculated using information on beef consumption, nominal retail beef prices, consumer price indices for deflating nominal prices and an assumed beef price elasticity estimate.

The Quarterly All Fresh Retail Beef Demand Index was up 5.39% during the April to June quarter of 2014, and up 3.89% during July to September. Those two quarters coincided with price rallies for fed and feeder cattle. They also coincide with new record retail beef prices, as October’s Beef Retail Price Composite reached $5.62 per pound, according to USDA.

“It is critically important to recognize that per capita consumption reflects current supplies, while demand conveys how consumers value the volume of beef pounds they are presented with,” Tonsor says.

Beef demand can increase in periods of declining per capita consumption, as in 2014. Demand can also decrease in periods of increasing per capita consumption.

“In some years, we have seen increasing per capita consumption—because production was increasing—yet beef demand fell. That was the case moving from 2008 to 2009, and likely a reflection of recession-induced demand erosion,” Tonsor adds.

Because beef production will decline in 2015, per capita consumption will also tick lower. Demand, however, depends on several developing factors.

greg henderson

Editorial Director, Beef Today, writes from Mission, Kan.
ghenderson@farmjournal.com

 

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