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Agricultural News


Derrell Peel Says Beef Consumption on the Rise, But How Will that Affect Beef Demand into 2018?

Mon, 18 Dec 2017 14:31:53 CST

Derrell Peel Says Beef Consumption on the Rise, But How Will that Affect Beef Demand into 2018? Mondays, Dr. Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist, offers his economic analysis of the beef cattle industry. This analysis is a part of the weekly series known as the "Cow Calf Corner" published electronically by Dr. Peel and Dr. Glenn Selk. Today, Dr. Peel examines the domestic and international dynamics of beef consumption and demand.


"U.S. domestic beef consumption is projected to be 56.6 pounds per capita for 2017, up from 55.4 pounds in 2016 (retail weight). That is a 2.2 percent year over year increase. Beef consumption is higher because beef production is increasing; in fact, it is projected to be up 3.8 percent year over year from 2016.



"Domestic consumption is up less, in percentage terms, than beef production for a couple of reasons. First, growth in beef exports in 2017, projected to be up 12-13 percent over 2016, moves some of the additional production off-shore. That, along with minor adjustments in ending stocks, will result in a total domestic supply (disappearance) that is up roughly 2.8 percent year over year. Finally, though U.S. population grows slowly, it does still grow, so per capita consumption will increase even more slowly when the total domestic supply is spread across a larger U.S. population.



"Per capita beef consumption bottomed recently in 2015 at 54.0 pounds, so the 2017 level represents a 2.6 pounds per capita increase in beef consumption the past two years. Beef production and consumption are projected to increase again in 2018, with a forecast increase in beef production of 4.5 percent resulting in per capita consumption of 57.8 pounds, a 2.1 percent additional increase in per capita beef consumption.



"Increased beef consumption does not, by itself, indicate anything about beef demand. We are consuming more beef because we are producing more beef. The question of beef demand hinges on the question of "at what price will consumers eat this additional beef?" In general, we expect that increasing supplies will result in lower prices but how much lower is the key.



"Demand has been a pleasant surprise in 2017. Retail beef prices are currently higher than last year despite the increase in beef supplies in 2017. Beef demand is all the more impressive given that total meat supplies are higher year over year, not only the result of more beef, but also increased pork and poultry production. November retail Choice beef prices were $5.81/lb., up from 5.76/lb. in October and above that same level of $5.76/lb. one year ago. The all-fresh retail beef price was $5.64/lb. in November, up from $5.62/lb. in October and above the November, 2016 price of $5.59/lb. The ratio of retail beef prices relative to pork and poultry remains very strong, holding near to record levels achieved during the record high prices in 2015. The calculated beef demand index, which accounts for pork and poultry impacts as well as increased beef production, showed a slight increase for the third quarter of 2017.



"Retail beef prices are expected to decrease in 2018 given additional beef supplies. This will put additional pressure on wholesale beef prices as well as fed and feeder cattle prices. However, if demand continues strong, the retail price pressure may be rather modest with less negative impact on wholesale beef and cattle markets. Strong demand will depend on a continuation of generally strong macroeconomic conditions including decreased unemployment and income growth. Any change in overall macroeconomic conditions is a threat and factors to watch include rising interest rates and inflationary pressures. Shocks external to the beef industry, for example, a sudden jump in gasoline prices, could sharply impact consumer spending and beef demand.



"Continued improvement in beef trade will also be a crucial factor to minimizing price pressure in 2018. Continued strong exports to current major beef destinations including Japan, South Korea, Mexico, Canada and Hong Kong will be essential. New export growth to China is likely to remain a small market in 2018 but holds significant potential over time."



   

 

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