John Nalivka: A Few Thoughts – on beef demand
May 31, 2018
Demand will be critical to market performance as fed cattle numbers increase into the summer. I have said that more than once over the last several months. However, after looking at first quarter market performance, I think the outlook could be a lot more positive than the increased supply might otherwise portend, particularly with that added kicker as consumers buy those juicy Choice ribeye steaks or burgers to grill.
The first quarter's performance got the industry off to a good start and at a time of the year when seasonal demand is not that good. Taking a look at first quarter data, my estimates for U.S. beef consumption (production + imports – exports) was 2 percent higher than the prior year. At the same time, consumers paid a 1 percent higher retail price for that beef in the supermarket. This left first quarter retail beef expenditures up 2 percent from a year earlier. When adjusted for inflation, those beef expenditures were about even with a year ago. Considering a 3 percent increase in beef production coupled with the competition from 4 percent more pork and 1 percent more chicken, first quarter beef expenditures represented solid demand for that time of the year.
Further up the supply chain, wholesale beef prices during the first quarter were 6 percent higher than a year earlier while packers paid 2 percent more for Choice steers than a year ago. Feeder cattle prices for the period were up 13 percent from the prior year.
Trade represents the other part of demand and it may pose one of the greatest uncertainties with the talk of tariffs becoming reality. But, at the same time I think it is easy to get whipped up into a frenzy when the word tariff is even mentioned. Beef exports were up 12 percent from prior year during the first quarter. The value of those exports was up 19 percent from prior year. The question is: will the added cost of a higher tariff on U.S. beef in key export markets have a significant negative impact? I don't think that the answer to that is question is cut and dried.
In short, demand for increased U.S. beef production both globally and at home and has been quite positive to the market. While we are facing increased cattle numbers as the third quarter approaches, we are also headed into the summer grilling season and the evidence for U.S. consumer demand so far I think suggests limited downside pressure from supply.