NAlivka: Beef Demand Today is Highly Segmented
October 15, 2015
I thought I would pick up on my last article concerning the downturn in prices. Record beef prices over the past two years have raised many discussions, debates, and conversations about how long before those markets could no longer be sustained. Prior to September, these discussions concerned the market outlook. During September, they quickly became the market situation! Risk management concerns the outlook.
Looking down the road at where we go from here, we generally know where we are at with regard to beef supplies as well as total meat supplies. Of course, as we all know, the circumstances surrounding that supply outlook can change and so can the supply as producers react. But, for now, expansion or continued production expansion for the red meat and poultry industries that was spurred by record profits is on track. My forecasts for 2016 suggest a 4 percent increase in beef production, pork production up about .5 percent from this year's record high, and 3 percent more poultry. So, that leaves per capita total meat supplies up about 1 percent from this year, but more importantly, back on track prior to 2014 when that figure dropped significantly in the face of a sharply liquidated cattle herd coupled with a sharply-reduced pig crop due to PED virus.
As we assess the outlook for the beef industry into 2016, demand is the other side of the equation. Demand will be the primary factor concerning the price outlook next year and while it poses much more uncertainty than supply, I am fairly optimistic.
Beef demand has changed significantly over the past decade – both in terms of beef products offered and the quality of beef. This is true both in the supermarket meat case and at a restaurant. There are new cuts as well as other attributes in the product including organic, natural, and grass-fed. Consumers have become much more vocal in what they expect and the industry has worked toward accommodating these expectations by whatever means including solid premiums. In addition, food safety has taken a front seat as has animal care and handling. We have seen pretty dramatic change across the entire supply chain as the industry has focused more on the consumer.
Demand concerns the both the consumer's willingness and the ability to purchase a product in the market. The dynamics of demand are complex, but I feel increasingly confident that while supply pushed prices to record highs, demand will be the factor that will keep prices relatively sound as supply increases. At the end of the day, supply and demand must find a balance across the supply chain.