by: Clifford Mitchell
From the outside looking in, some not familiar with the beef industry may look at a market report or numbers in the supply chain and feel like ranchers are sitting in the driver's seat for many years to come. Increasing production costs, unfavorable weather patterns in “cow country” and recent market variability put a small cloud over what most conceived as a bright future for the days that come. Market expectations can still hover at record levels, but overall profitability still hinges on beef demand.
This is a tricky subject with most ranchers because the attitude has always been to raise them and let another segment of the industry take the risk of getting those calves to the meat case. From “lean crazes” to the industry pushing for more marbling; one thing has always remained true: the American consumer likes to eat beef. Short supplies coupled with different economic factors have changed buying habits and the rancher's understanding of what the buying public wants will influence the future.
“Most producers envision that consumer walking to the meat case and picking out a steak, when in reality they are changing what they buy. They are buying more ground or braising type products,” says Charlie Bradbury, CEO Nolan Ryan's All Natural Beef.
“I think it's easy for people to sit back and say consumers will quit buying beef if the price gets too high. I don't think people are ever going to quit buying beef, they are just going to change what they buy. That steak will be more of a celebratory occasion,” says Dr. Derrell Peel, Oklahoma State University.
“Americans like to eat beef, but these are challenging times for consumers because of retail prices and their ability to buy beef,” says Steve Kay, Cattle Business Weekly.
Inconsistencies in quality or a bad eating experience sometimes have lead beef producers to be their own worst enemy when it comes to satisfying the buying public. Trends toward healthier products, inferior beef and improved production systems from the competing proteins opened the door for consumers to spend their food budget on pork and poultry. High prices could bring increased competition in the coming months.
“Beef is going to be in an extremely tight supply for at least the next two or three years and maybe even longer than that,” Peel says. “The competing meats have already started the expansion process and could challenge beef demand because it's available. Income level will have a big impact on these buying decisions.”
“The drought has impacted the top five cow/calf states which lead to a big decline in the beef herd and the 2012 calf crop looks like it will be one of the smallest on record. The supply will continue to decline for the next four or five years,” Kay says. “Even though Americans still want to eat beef, there is going to be more pork and chicken available. If the price difference is significant, consumers could turn to buying more of the competing proteins.”
Supply concerns dominate industry jargon up and down the production chain. Questions remain with the economic health of the consumer, production costs and how do producers ultimately increase cow numbers in somewhat of a tricky environment. Reduced culling rates or heifer retention could further influence beef price.
“Profitability has to be there for producers to increase cow numbers. Less feeder cattle imports from Mexico, heifer retention and reduced culling could further diminish the beef supply, forcing the price higher,” Kay says. “There is a significant over capacity in the feedlot industry and the entire industry could become a lot smaller overall. If the weather cooperates, you could see increased heifer retention taking them out of the beef supply. Rising production costs continue to put producers in a position of caution when it comes to expansion.”
“The cull cow numbers will slow when it looks like beef herds have been liquidated enough and if it rains there will be fewer available,” Bradbury says. “Fewer numbers has had an impact because there is not enough lean beef trim from cows going forward. This is a big item for the fast food market and will put all the pressure on fed beef trimmings in the future. Traditional purchasers have to work far enough ahead to have the supply they need.”
“There is not going to be as much beef on the market in the coming years and prices will stay high if demand stays strong. I think we all know the beef herd is smaller than it needs to be, but the question is how much we need to grow. More supply could just increase demand concerns,” Peel says. “If Mother Nature will cooperate, beef demand has to stay high to tell us what size the industry needs to be. When this happens the packing and feedlot industries will adjust.”
The change in product mix consumers are willing to purchase has to do mainly with the economy and the ability to pay for beef. Demographic changes, income levels and the increasing diversity of the buying public will have an impact on demand in the future. The transition from middle meats to end meats is just as much a by-product of the economy and ethnic range as it is availability.
“Expendable income is the missing ingredient. The economy in general has as much to do with people wanting to buy ground products or braising beef as the shortage of cattle. There are plenty of people who still want to buy a steak, but saying the price is too high because of supply may not be painting an accurate picture. In areas where we do see increased expendable income people are still willing to pay a lot for beef,” Bradbury says. “The retail stores are stocking a different mix. The Hispanic market eats different cuts and consumes more pounds. There are retailers that cater to a certain demographic or ethnic group and it's changing the product mix.”
“Mexico has become the number four source of imports of muscle cuts that cater directly to the Hispanic market in larger urban communities. Consumers are utilizing a lot of ground products and finding those value cuts,” Peel says. “There is a difference between home and away from home. Consumers are emphasizing fast food rather than sit down. Retailers are looking to add dishes with cheaper cuts and voluntarily reducing portion size to control price. Beef demand is tricky and in the short term seasonable changes in gas price directly affects the consumer's ability to buy beef.”
“There are a lot of issues that affect a consumer's ability to buy beef or food. The price at the gas pump has had a tremendous impact,” Kay says. “As the price rises consumers will find more ways to utilize different cuts of beef.”
The tremendous push toward improving carcass quality has raised the bar for ranchers in the quest to finely tune the production aspect of the system. A change in consumer demand could change how producers accomplish this task, but an increased supply of high quality beef could open the door to a component that has been underutilized in an effort to satisfy domestic demand.
“The future will answer a lot of questions concerning beef demand. As consumers drift away from buying middle meats this could change production systems. The other parts of the carcass have increased in value, shifting the emphasis from the middle meats. The industry has never been challenged to answer these questions,” Peel says. “Demand looks like the international component may mean more to product sales than the domestic consumer. I see exports not only growing in supply, but the value comes from the international sector. The industry will be more heavily focused on the international market than we have been in the last 10 years.”
“Producers have moved steadily to improving the genetic base of the cow herd since the 80s, trying to improve the quality of beef without adding to production costs,” Kay says. “The industry dilemma is; we have the largest supply of grain-fed beef in the world and there is a growing world demand for that beef. The industry will have to find out if there is enough beef to satisfy the growing world demand and keep the domestic consumer happy. Challenges and opportunity lie ahead for the industry.”
Cattlemen sometimes curse the long generation gap. This impacts the ability to make genetic improvements and grow supply in a hurry if beef demand sends this signal to beef producers. Most ranchers realize what has often been a “thorn in their side” could be “a blessing in disguise” in the current economic environment.
Consumer demand will obviously continue to be a driving force in the marketplace. The ability to buy that high quality eating experience could overshadow all the genetic and production system improvements the industry continues to strive to make. The future will answer a lot of questions pertaining to product mix and general economic recovery. Targeting the end product consumer could bring a shift in how business is conducted, but it could ultimately spread the risk of providing a good eating experience over the entire industry.
“If there were more cattle, I think there would just be an increased supply of the higher priced middle meats and lower the price of end meats because more pounds would be available. Most consumers don't know what they want to buy until they are standing at the meat case and a lot of factors play into that decision, not just the paradigm of what's it worth,” Bradbury says. “As the uncertainties are removed and consumers know where they are going to be financially, we may see a change in product mix. This will also impact supply decisions and how we grow the cow herd.”
“There is a core group of consumers that like to eat beef. As we try to grow the cow herd beef prices will get higher,” Kay says. “Product mix will change, but most of this will depend on if we see some recovery and a wage increase that will allow them to keep up with the cost of living, much less the rising cost of beef.”
“The slow generation gap could actually be helping beef demand. High grain prices are going to require a long term adjustment for the industry and how we feed cattle. Some day we will increase cow herd numbers adding further challenges to the beef industry. Continued economic recovery could change consumer buying habits back to middle meats or this trend could be long term,” Peel says. “If nobody wants your product then it's not a business, it's a hobby. Beef producers no longer have the luxury of ignoring what consumers want. This will have a big impact on how we produce beef and handle it in the future.”
http://cattletoday.com/archive/2013/October/CT3008.php
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