While overall beef demand over the last 10 years, there is evidence that consumers are willing to pay premiums for specific traits and the type and location of production, said Elliot Dennis, livestock marketing economist at the University of Nebraska, Lincoln.
Dennis made the comments in a letter to Extension agents from the Livestock Marketing Information Center in Denver called In The Cattle Markets.
LOCAL AND ORGANIC
“Local” and “Organic” are two forms of type and location of production, Dennis said. However, the labels “Local” and “Organic” are vague, causing confusion among consumers.
The USDA has no specific definition of the “Local” label but they work to promote locally grown products with slogans such as “Georgia Grown” or “Utah’s Own,” he said.
The “Organic” label is more specific and “regulations require that animals are raised in living conditions accommodating their natural behaviors (like the ability to graze on pasture), fed 100% organic feed and forage and not administered antibiotics or hormones,” Dennis said.
PRICE PREMIUM INFERRED
The price premium consumers are willing to pay for attributes like organic must be inferred using advertised-price data from the USDA’s Agricultural Marketing Service, Dennis said. Actual consumer purchase behavior is available through scanner data collected by private companies but generally is cost prohibitive.
While data on advertised prices do not provide a signal on the quantity of meat product purchased, it does provide some signal on what retailers believe is the profit maximizing price for select cuts, he said.
Since December 2018, the AMS has collected advertised meat prices, generally on a weekly basis. Also collected are whether the product is conventional, local, organic, local/organic and the number of stores that advertised the product.
To avoid inferring a specific local price premium for a national price premium he dropped local price premiums and focused on organic price premiums, he said. Thus, using advertised meat prices, organic price premiums can be deduced.
A FEW CAVEATS
There are a few caveats to an analysis like this, Dennis said.
First, promoted products change weekly, so not every product has organic and conventional products advertised each week causing large amounts of missing data. Premiums can only be compared within weeks when both the conventional and organic products are advertised.
Few matches provide a “weak,” unreliable, price signal, he said. Thus, he limited his analysis to beef, pork and chicken sub-products where there were at least 10 stores reporting a price and where the price was reported in at least 10 weeks.
Second, seasonality in meat prices most likely is present but he ignored this and averaged across weeks given that the data spans from December 2018 to January 2020 and is not consistently reported each week.
Third, the quality grade of the beef products was not reported and thus not included in the analysis potentially downward biasing the premiums for beef.
CATTLE, BEEF RECAP
Cash cattle trading was reported in the western Corn Belt Wednesday at $192 to $193 per cwt on a dressed basis, down $2 from last week. No live-basis trades were reported but took place last week at $122 to $122.50 per cwt, down $1 to $4.50.
The USDA choice cutout Wednesday was down $0.21 per cwt at $210.72, while select was up $0.43 at $207.94. The choice/select spread narrowed to $2.78 from $3.42 with 92 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Tuesday was $141.43 per cwt, down $0.31. This compares with Wednesday’s Mar contract settlement of $135.67, down $1.82.