John Nalivka: A Few Thoughts – on beef demand – strong but how strong is it?
There is no debate that exports have become critical to the red meat industry as production has expanded to record levels. Consequently, the tariffs are the hot topic. While I don’t intend to add further commentary to the tariff discussion at this point, I do firmly believe that much of the analysis is wading into unchartered waters. Much of the discussion on tariffs really falls under the heading of political economics with trade a complex topic with a lot of moving parts.
Starting at the intersection of supply and demand where prices are determined, there is no shortage of analysis and discussion on the supply side of the equation. Supply analysis is definitely driven by numbers while demand is more difficult to quantify and thus, tends to be more qualitative. But, we draw conclusions about demand from an estimate of consumer expenditures using monthly production data coupled with retail prices. While this calculated value may not necessarily be the absolute go-to-the-bank value, it does provide a good comparison on what consumers are generally spending on beef, pork, and chicken, between those different meats as well as month-to-month and year-over-year.
So, let’s take a look at red meat and poultry production and expenditures for January – July of this year. Beef and pork production were both up 4 percent over the prior year from while chicken production was up 2 percent. Total red meat and poultry production was 3 percent higher than a year earlier. I have said repeatedly that given that production, prices have performed relatively well. That can only be attributed to demand. Rather than building an index to quantify demand, I think consumer expenditures provide a pretty good picture and that number is simple to calculate and understand.
Adding U.S. imports and subtracting exports from the production figure leaves beef, pork, and poultry that was consumed by U.S. consumers here at home. During January – July, there was 1.8 billion pounds of beef imported (unchanged from a year ago) into the U.S. and 1.8 billion pounds exported, a 15 percent increase over the prior year. This left 3 percent more beef consumed in the U.S. for that period than during the same period a year ago.
Using USDA’s All Fresh retail beef prices, 15.4 billion pounds of beef discussed above that was purchased by consumers in the supermarket generates a total value of $61.4 billion, a 3 percent increase over the prior year. I do realize part of that production was consumed in restaurants, but for simplification, I value entire quantity using retail beef prices. The All Fresh retail beef price was up 1 percent over a year ago. Adjusting expenditures for inflation, the figure would show a 1 percent increase over the prior year.
So, yes while U.S. beef exports are strong this year and contributed toward higher prices across the complex, U.S. consumer demand representing the largest share of consumption is also making a strong showing and supporting the market.