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In The Cattle Markets

06 June 2011

US - Demand for both beef and pork increased noticeably through the first quarter of this year according to demand indexes calculated by the Livestock Marketing Information Center writes John Michael Riley, Ph.D., Asst. Extension Professor, Department of Agricultural Economics, Mississippi State University and John D. Anderson, Ph.D., Livestock Economist, American Farm Bureau Federation

Retail Meat Price Comparison

The first quarter demand index for beef worked out to 79 in 2011 compared with 74 in 2010.Q1 (note that 1990=100 in those index calculations). Similarly, the pork demand index increased from 76 to 85 from 2010.Q1 to 2011.Q1. Improving domestic demand and strong exports have helped push retail beef and pork prices to historic highs. In fact, in April both all fresh beef retail and pork retail prices reported by USDA Economic Research Service hit new record levels: 445.3 cents/lb for beef and 337.7 cents/lb for pork.

For any item, the relative price of competing goods is an important determinant of demand. In the meat sector, changes in relative prices over the past year-and-a-half have been interesting, and they suggest something of a challenge to beef and pork demand growth moving forward. Specifically, retail broiler prices have become considerably less expensive relative to both beef and pork. Figure 1 shows the percentage change in retail beef (all fresh), pork, and broiler (retail composite) prices since January 2010 – when retail prices for all of these products were at or near recent lows due to the recession.

Figure 1. Retail beef, pork, and broiler prices as a percent of the January 2010 price

Source: USDA Economic Research Service

While beef and pork retail price have each increased about 15 per cent since January 2010, with notably strong gains since the end of last year, broiler prices have been remarkably flat. In fact, broiler prices have actually decreased by over four per cent since the end of last year. This largely reflects the major problems that the broiler industry has had in the key export markets of Russia and China over the past couple of years.

The industry has long counted on export markets as reliable consumers of lower-valued dark meats. That may be changing, though. Recent data suggests that demand for dark meat in the domestic market is growing. While the retail broiler composite price has been flat, wholesale leg and leg quarter prices have increased substantially even though exports have remained slow. This means that more of the broiler composite value is accounted for by dark meat cuts and that more of the demand for those cuts is coming from the domestic market.

This development has received some popular press attention, with Reuters noting in an article last week that Tyson Foods is diverting more of its lower-valued dark meat cuts into the domestic market and is also planning new product offerings incorporating dark meat. A shift in consumer preferences back toward dark meat would represent a reversal in a long-standing trend in the domestic meat market. It would also, as noted, represent a new challenge for beef and pork demand.

The Markets

Fed cattle prices slipped a bit further last week, with the 5-Area weighted average steer price (live basis) giving up a little more than $3 from the prior week, working out to $105.12. Feeder cattle prices were sharply lower as well owing largely to the very bearish Cattle on Feed report released at the end of the prior week.

Oklahoma City feeders and stockers were called $5 to $10 lower. Wholesale beef prices managed to basically hold steady – actually rising modestly through mid-week before settling back down by week’s end. This week, retailers will be assessing how beef moved over the all-important Memorial Day weekend. Corn prices were volatile last week but essentially flat. Planting progress, or lack thereof in the eastern Corn Belt (ECB), remains a key issue for the market. The potential to lose a significant number of ECB corn acres remains real and, unfortunately for the livestock sector, still growing.

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