On the production side of the industry, the focus has become whether the nation’s beef cow herd will begin to grow and eventually result in more beef production. On the demand side of the industry, such growth could mean an increase in beef consumption. However, even if beef cow numbers are modestly higher at the beginning of 2014, it will likely be 2016 before beef production, and therefore beef consumption, begins to increase. In fact, beef consumption is forecasted to decline about 5% in 2014 to about 53 pounds per person (retail weight equivalent). In 2015, beef consumption could drop to 52 pounds per person.
The reduced quantities of beef available have translated into record beef prices this year. From January through October, the price of all fresh retail beef averaged $4.925/lb. That’s up 5.3% compared to the same time period in 2012. In October, the price of all fresh beef set a new record high at $4.977/lb. Such higher prices, driven by smaller quantities, have many wondering whether consumers will be willing and able to continuously pay more for beef. It’s a valid concern and is difficult to project for future years (because it involves forecasting changing consumer tastes and preferences). However, available information about beef demand thus far in 2013 (while beef prices were continuously setting new record highs) would suggest that beef demand has been better than would have been expected. Consider this:
- The demand for all fresh beef for the first three quarters of 2013 was about 3% higher than the same time period in 2012. That’s based on a demand index that considers both quantities demanded and prices. In Econ 101 terms, it represents an outward shift in the demand curve for beef.
- The National Restaurant Association reports that its Restaurant Performance Index (RPI) rose to a four-month high in October 2013. While this considers more than beef sales, dining out accounts for 40-50% of consumer beef purchases in the U.S. The RPI was 100.9 in October, which indicates slight expansion in the industry. The RPI is constructed from a Current Situations Index and an Expectations Index. In October, the Current Situations Index averaged 100.9, which was one index point higher than in September. The Expectations Index rose 0.4 points higher in October to 100.9, signaling some cautious optimism about future restaurant sales.
- Beef and veal exports were 5.4% higher in October 2013 compared to a year ago, according to USDA’s trade data released last week. In fact, for the first ten months of 2013, beef exports totaled 2.14 billion pounds, an increase of 4% compared to January-October 2012. Beef exports to Japan continue higher, with October 2013 posting a 42% increase over a year ago. Year-to-date, beef exports to Japan are 47% higher than a year ago. Beef exports to Hong Kong and China (Taiwan) continue strong as well. For the year-to-date, beef exports to Taiwan have doubled relative to a year ago, while Hong Kong’s imports of U.S. beef are up 67%. Beef exports to Canada and Mexico, historically among the U.S.’s largest beef export destinations, are 5-6% higher so far in 2013. While many of the U.S.’s beef customers have increased beef purchases this year, exports to South Korea, Vietnam, and other countries have declined this year. Russia continues to import no U.S. beef.