The outlook for cattle and beef prices in 2013 and 2014 is decidedly bullish when examining the supply side factors, says Darrell R. Mark, Ph.D., in his Feb. 18, iGrow.org Cattle and Corn Comments. Mark is an Adjunct Professor of Economics, South Dakota State University.
 
"Cattle numbers are at half-century lows and any growth this year will be modest at best," Mark said. "While these supply fundamentals could push cattle and beef prices to new record highs in 2013, price advances will be limited by the willingness and ability for beef consumers to continue to pay more for beef."
 
While a multitude of factors affect beef demand – including prices of competing proteins and consumer tastes and preferences – Mark says consumer disposable income is of special interest in a sluggish economy.
 
"Generally, consumer income and beef demand are positively related; that is, when consumer income declines, beef demand declines. That’s especially true for higher-valued cuts, but demand for lower-valued beef, like hamburger, can increase when consumer incomes decline," he said. "Still, during economic recessions and periods of high unemployment, beef demand as a whole would be expected to struggle. Interestingly, beef demand has been increasing for the last two years. Here’s why – beef price increases have exceeded reductions in quantity of beef consumed."
 
When measuring beef demand, Mark explains that both the retail price and the quantity purchased (or consumed) must be considered.
 
"After all, demand is a schedule of quantities that consumers are willing and able to purchase at various prices. When both price and quantity decreases, demand declines. Conversely, when both price and quantity increase, demand increases," he said. "Whether a demand increase or  
directions depends on the magnitude of the changes and the elasticity, or responsiveness, of demand."
 
In 2012, beef consumption was 57.3 pounds per person. While that represents no change from 2011, it is more than 8.5 pounds lower than in 2006. The retail all fresh beef price averaged a record high $4.69 per pound in 2012. That’s an increase of $0.25 per pound since 2011 and $1.08 per pound since 2006. On an inflation-adjusted basis, all fresh beef prices rose $0.12 per pound, or 3.6 percent, last year.
 
"So, with no annual change in consumption in 2012 and a 3.6 percent increase in prices, beef demand increased this last year," Mark said.
 
Beef consumption expected to fall in 2013
While beef demand hasn’t increased back to the levels seen in the mid-2000’s when high protein, low carbohydrate diets were popular, Mark says a demand increase like that seen in the last couple of years is positive.
 
"However, there is more to it that generates concern for future beef demand. So far, price increases have outpaced the declines in quantity, but that will be increasingly difficult in the next couple of years as beef supplies tighten further," he said.
 
Beef production equals beef consumption after adjusting for imports and exports. Although the import and export adjustments are meaningful, they are relatively small and domestic consumption tracks closely to domestic production. With no herd growth occurring yet and carcass weights expected to stabilize in 2013, beef production, and therefore consumption, will fall in 2013.
 
Currently, Mark says beef consumption will decline almost 2 pounds per person to 55.5 pounds per capita in 2013.
 
"Beef consumption will likely drop below 53 pounds per capita in 2014," he said.
 
In order for beef demand to remain constant, Mark says real beef prices would need to increase by about 3 percent in 2013 and another 5 percent in 2014.
 
"So, the question becomes, ‘how likely are consumers to pay more for beef?’ There is no way to know that because consumers’ tastes and preferences change and the economic outlook is uncertain,"’ Mark said. "However, it appears like consumer resistance to higher prices is mounting."
 
He adds that restaurant sales are showing no signs of growth and many rapid serve restaurants are shifting menu items to focus on cheaper pork and poultry.
 
"Consumers are likely to make the same decisions in the supermarket when faced with even higher beef prices," he said.
 


To view the Cattle and Corn Comments this article is based on and past articles by Mark, visit iGrow.org/livestock.