Consumer’s hankering for beef important as price rises

It will be interesting to see how consumers react to the high beef prices at supermarkets this summer.

High beef prices are here to stay, at least for the next few years as the North American cattle industry climbs back from a decade of misery, including BSE and its trade limitations, U.S. drought, record high feed costs and country of origin labelling.

These challenges, which destroyed most of the profitability of cattle production, caused herds in North America to shrink to the smallest in years.

They are so small they can’t keep up with demand so the market is reacting, as it should, with higher prices.

On June 9 feeder cattle futures in Chicago rose the three cent a pound limit, setting the latest in a string of record highs. Fed cattle and beef have also posted records this year.

Strong fed cattle prices and the prospect of good feed crops that will lower the cost of production has feedlots eager to buy calves from cow-calf producers.

It is a strong signal to start to rebuild but producers appear leery, at least in Canada. Many of those who stayed in the business through the hard times are getting to an age where they question if they are up to the hard work, which for so long has yielded such poor returns.

Grain production has been more profitable and is less physically demanding.

But if the renewed profitability of beef production is sustainable, then a new generation might be attracted to the business, or perhaps new business structures will emerge as they are on the grain side.

We’ve seen non-farmers invest in land and farming corporations and they could also get involved in cattle production. Such investment is still a tiny part of production agriculture but it can have an impact.

A measure of consumer reaction to higher beef prices might provide confidence to those, inside and outside the industry, looking at rebuilding cattle herds.

While beef consumption on a per person basis is falling, the amount of money consumers are willing to spend for beef is rising.

Canadian per capita beef consumption fell 1.5 percent to 19.7 kilograms from 20 kg in 2012. But demand, which is a measure of volume consumed and price, has grown, showing Canadians’ taste for beef is remarkably resilient despite rising retail prices.

Consumers’ desire for beef is particularly notable when they dine out. A U.S. survey of executives in the food service industry showed that the amount of beef used in the food service industry increased about one percent to eight billion pounds in 2013.

Beef consumed at restaurants and other food service outlets in the U.S. 2013 was 178 million pounds higher than it was in 2009 – the largest overall increase of all proteins in foodservice.

The draw of a well prepared steak or burger can’t be underestimated.

So there is good reason to hope that consumers will stick with beef, despite high prices, as the industry rebuilds.

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