Source: John Michael Riley, Asst. Extension Professor, Department of Agricultural Economics, Mississippi State University
click image to zoom To take you back to Economics 10, two primary forces affect price: supply and demand. Last week, Dr. Anderson highlighted the adjustments to beef and competing meat supplies from the recent supply and demand report. So much discussion lately has revolved around shrinking beef and cattle supplies. Even with the increased beef production there is little doubt the supplies have shrunk and will likely continue to shrink moving forward. These tight supplies would translate to higher prices if everything else remained unchanged. We economists like to sound fancy by using the Latin phrase “ceteris paribus”, which translates to “with other things the same.” Scientists are able to create this environment with trials and therefore can isolate the effect of, say, inputs A or B on output. There are so many moving parts in an economy that pinpointing the cause of price movements with precision is extremely difficult.
A great example of this phenomenon is the start of 2013. As the authors of this publication and others have pointed out “all else” has not remained the same and beef demand has been under pressure. This is a fairly recent outcome given that demand did show strength in 2011 and 2012. Therefore, it is appropriate to highlight the factors currently shaping beef demand but first to discuss what beef demand is not (using an updated adaptation of remarks from Schroeder, Marsh and Mintert).
First, beef demand IS NOT simply consumption (or per capita consumption). Beef is a perishable product. Given the long production lag for cattle, each year the production, i.e. production, of beef is fixed. Outside of some minor shifts in frozen supplies of beef or beef leaving and coming into the United States (which have been roughly equal since 2010), each year the amount of beef consumed is roughly equal to the amount of beef produced. Therefore, the reports that show shrinking consumption per person are completely acceptable since the total available supply of beef has been declining and the population is growing.
Beef demand IS NOT the percentage of beef consumed relative to other competing meats like pork or poultry. These products are perishable too and thus their proportion of total meat consumption will fluctuate as their supplies increase or decrease. For example, if one billion pounds of beef, pork, and poultry are produced this year then the ‘average’ person will consume 33.3% of each product. If poultry production were to increase to 1.5 billion pounds and beef and pork remained at one billion, then the average individual’s meat consumption would consist of 43% poultry and 29% each to beef and pork. This does not indicate that beef and pork demand declined from 33.3% to 29% nor did poultry demand increase from 33.3% to 43%, it is simply a case where more poultry was available.