Speer: One Good Thing Leads To Another

Mid-September’s Market-to-Market (Iowa Public TV) cattle discussion started out with host Paul Yeager asking, “Is there still a demand for beef?”  His guest analyst, Don Roose, replied with the following:  “You know what’s really amazing, Paul, [beef is] the highest priced meat protein but it also has the best demand followed by chicken and then pork.  So yeah, the beef demand even at these high prices is just very strong.”  

Amidst all the recent concerns about the economy, inflation and consumer sentiment, beef demand and pricing power has remained incredibly resilient.  That reality underscores just how beneficial investment in building demand has been over the past 20 years.   However, within that broader trend, there are some significant dynamics playing out in the marketplace.  

Consumers are clamoring for high-quality beef.  That’s best evidenced by the Prime / Choice spread: it surpassed $90 in September (a new record) – and the 52-week moving average now stands above $55 (see first graph).  

Undoubtedly, the recent decline in supply of Prime is partially fueling the surge.  But what really matters is the longer-run trend.    (see second graph)

Prime has seemingly become a category unto itself.   It’s consistently grabbing a bigger portion of market share.   To that end, the table below highlights comparisons for Prime, Choice, and Select, respectively.   The data outlines differences for 12-month totals (May-1–to–April-30) in 2022 compared to 2012.  Prime sales have grown dramatically during the past decade; total dollars generated from the category are up 322% - equivalent to an annualized growth rate of nearly 17%!!   Simultaneously, dollar totals for Choice have grown just 6.8% annually while Select dollars have turned negative.  

That’s not going to change.  To the contrary; price differentials will likely expand further amidst shrinking cattle numbers.   I noted in a column several weeks ago, “The chase will be on as supplies get even tighter in next several years.”  

   As alluded above, overall beef demand has been persistently strong.  However, the difference in growth-rate between Prime, Choice, and Select during the past ten years indicates consumers have become more discriminating about their purchases.  That is, beef is not beef is not beef – the market is clearly signaling that cattle, and the subsequent beef products they produce, are NOT fungible.   

Therein enters some meaningful implications surrounding current debate around the fed cattle market.  The industry’s success in building demand is no accident.  It the direct result of a long-standing commitment to the consumer.  Along the way, those efforts have established huge differences in value and market share across USDA quality grades and the cattle that produce them.    

Realization of those value opportunities at the top end (and there’s a lot of it!) occurs only by getting closer to the consumer. But attempts to mandate commodity pricing ignores all that - and ultimately hampers ranchers and feedyards working to differentially market their cattle.      

Beef quality and consistency never go out of favor; that’s always been true at the restaurant level – but is now increasingly true at home, too.   As such, more production of higher quality, more desirable products establishes better consumer demand.  And in turn, better consumer demand creates the need for even more high-quality beef.    One good thing leads to another.      

Nevil Speer is an independent consultant based in Bowling Green, KY.  The views and opinions expressed herein do not reflect, nor are associated with in any manner, any client or business relationship.  He can be reached at nevil.speer@turkeytrack.biz.