CME: Consumer Meat Demand Strong

US - The latest demand data indicates strong consumer demand, even in times of high retail prices, write Steve Meyer and Len Steiner.
calendar icon 11 November 2015
clock icon 4 minute read

Consumption is only one part of the two components of beef demand. Demand is price and quantity, together. Or, how much is consumed, or purchased, at a given price.

When beef price increases, people normally buy less. Economists call this changing quantity demanded.

The demand relationship itself can shift positively or negatively based on changes in incomes, tastes and preferences, the price of pork, etc. Increased demand is a result of a positive shift in the demand relationship.

US per capita beef consumption is a calculated number, it is not survey based. Per capita consumption (or more correctly, disappearance per person) is US beef production plus beef imports, minus exports, plus the change in stocks, divided by the US population.

That amount of beef is then put on a retail basis which accounts for the weight as beef appears in a grocery store.

If production and trade stay the same from year-to-year, but population grows, per capita consumption declines. If exports grow, per capita consumption generally drops.

Beef demand is notoriously difficult to measure, as are shifts in the price and quantity relationship.

One of the difficulties is consumers are all different and data on what they actually eat are very limited. Further, consumers do not exactly buy beef; they buy hamburger, rib-eyes, tri tip, etc. and these cuts are all very different.

Prices used in these calculations are deflated retail prices calculated by USDA’s Economic Research Service, which have some major limitations.

Still, broad measures of demand are useful, especially in a long-tern context. The third quarter of 2015 showed continued positive shifts in the All Fresh Retail Beef (AFB) demand.

The demand index stood at 94, up almost 7 points compared to last year and the highest it since 1991. That number includes a slight increase in per capita disappearance, up 0.25 pounds (or 2 per cent).

The increase in per capita disappearance can mainly be attributed to increased US beef imports during 2015.

On the price side, AFB posted a 6 per cent increase in retail price compared to third quarter of 2014. This price change, although still moving up, did so at a much slower pace than in 2014 compared to 2013 when it had a 14 per cent jump.

The bottom line is consumers are still demanding more beef at increased price levels.

Pork also showed strong demand at the retail level in 2015’s third quarter. Compared to last year, the pork demand index was up just over 2 per cent, and was the strongest it had been since the third quarter of 2004.

Per capita disappearance increased 9 per cent year-over-year and prices decreased a relatively modest 8 per cent.

This is a more classic example of supply and demand interactions; pork production increased substantially, consumers responded paying lower prices to clear the market of that larger supply, but the price drop was less than “normal”.

Looking ahead, fourth quarter beef demand could get interesting. The Livestock Marketing Information forecasts year-over-year increases of beef production, up 2 per cent to 3 per cent.

The increase in production stems from dressed cattle weights that will stay substantially above year ago and slightly more cattle coming to the market as the industry begins to cyclically see an increase in supply due to herd growth.

This indicates a per capita consumption increase of 5 per cent compared to fourth quarter of 2014, on a retail weight basis. This would be the largest year-over-year increase since fourth quarter of 2004.

It will be interesting to see how the industry reacts to more supply, especially at the consumer end. However, so far strong domestic demand during times of high retail prices has been a good sign for the industry.

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