Soaring Beef and Cattle Prices Say a Lot about Beef Demand

By: Mary Lou Peter, K-State Research & Extension News

News that U.S. beef and cattle prices hit record high prices early in the new year is a good sign for producers and even some consumers, according to a Kansas State University agricultural economist.

"This is a good thing for both sides," said Glynn Tonsor, livestock marketing specialist with K-State Research and Extension, noting that while the prices may be construed as impeding some beef purchases at grocery store meat counters, some consumers are willing and able to buy at these prices.

Following a string of record-setting days, the U.S. Department of Agriculture on Jan. 13 reported choice beef cutout values at a record high $216.94 per hundredweight (cwt), up from $200.65 on Dec. 31 and $194.09 on Jan. 13, 2013.

Also after several days of increasingly higher values, the USDA reported live steer prices climbed to a record high average of $139.68 per cwt the week of Jan. 6-10, 2013 in the five-area price report, which includes Kansas, Texas, Oklahoma, Nebraska and other states. That was up from an average $137.53 a week earlier and $126.04 a year earlier.

Overall beef demand strength has surprised analysts, playing a key role in current cattle prices throughout the industry, Tonsor said. Over the next few months, beef supplies are expected to continue their decline leading to higher retail beef prices as long as retail demand is constant or improving.

"The lower available supplies by definition means that per capita beef consumption will decline. It is important to recognize this consumption reduction not be uniform across households," he said, adding that the amount of beef that shoppers will buy will vary by income and the overall value individual households place on beef offerings.

"In the past we’ve had per capita beef consumption of 55 to 65 pounds, but that’s coming down," Tonsor said. Per capita consumption of beef has been going down the past two years and per capita consumption of chicken and pork have been going up. That will continue in 2014."

The USDA reported the average price of choice sirloin beef steak at $6.80 per pound in November 2013, while the average price of boneless pork chops was $3.95 per pound. The same month the average price of boneless chicken breast was $3.45 per pound.

Overall, the beef price increases are linked to fewer cattle on U.S. farms and ranches, Tonsor said. The size of the U.S. cow herd has been down for several years – first because beef production was not profitable – and the past three years, because drought reduced forage and feed supplies, forcing producers to sell off their herds. Fewer cattle translated into less beef, which helped spur the higher prices.

In its last annual Cattle Inventory report, the USDA reported that there were 89.3 million head of cattle on U.S. farms and ranches as of Jan. 1, 2012, marking the lowest Jan. 1 inventory of all cattle and calves since 88.1 million head were reported in 1952. Another inventory report is due out Jan. 31.