Until sit-down restaurants are operating at pre-COVID levels, there likely will be differences in the spread between different primal cuts of beef, no matter the amount of cattle processed, said Brenda Boetel, agricultural economist at the University of Wisconsin—River Falls.
Boetel made the comments in a letter to Extension Agents through the Livestock Marketing Information Center called In The Cattle Markets.
It will take months for beef processors to work through the backlog of cattle on feed, she said. The spread between wholesale beef and live cattle prices likely will return to normal, although probably at lower prices because of the macroeconomic downturn.
ECONOMIC GROWTH PROJECTIONS DOWN
Economic growth projections for the world have been revised downward because of the effects of COVID-19, with many global projections contracting by nearly 3%, Boetel said. The US was expected to have one of the largest contraction rates at nearly 5.7%.
Beef consumption typically occurs shortly after production, so a consistent relationship between consumption and production exists, she said. Consumption does not reflect consumers’ perception of beef in the marketplace, but is a function of production, being calculated as production plus imports minus exports and disappearance. For the second quarter, overall beef consumption was expected to be down 12.5% from 2019.
CONSUMPTION, DEMAND DIFFERENT
But that doesn’t mean demand remains in a consistent relationship with production, she said. Demand and consumption are not the same thing.
Demand is affected by several factors including prices, as well as prices of alternatives, Boetel said. Income is another determining factor, as well as things like tastes and preferences. Demand represents consumers’ willingness to pay for the product.
The beef demand index calculated at Kansas State University shows a decrease of almost 18% for choice retail beef for April, compared with April 2019, Boetel said.
FOODSERVICE VS RETAIL
Typically, more than half of US beef consumption is through foodservice and not retail, she said. Products consumed through foodservice vary from those consumed through retail.
The market saw disruptions and changes in where beef is consumed manifest through the narrower spread between round and rib primals, Boetel said. Although this spread has begun returning to pre-COVID levels, it may show volatility until the restaurant industry has recovered.
Given a potential months-long economic recession, overall beef demand likely will be down even as sit-down restaurants open, she said. Consumers may exhibit a decrease in consumption from the expected decrease in 2020 production, but beef demand likely will be down more as consumers will be less willing to pay high prices for beef.
The return to US consumers spending large amounts on high-valued beef cuts will be slow and largely dependent on macroeconomic growth, and sit-down restaurants will find creative ways to entice patrons, Boetel said.
As such, overall beef demand likely will be down, while demand for higher-valued primals, typically consumed through foodservice, will be down even more.
CATTLE, BEEF RECAP
Cattle were sold in the Plains this week at $100 to $105 per cwt on a live basis, down $2 to $5 from last week. Dressed-basis trading was reported at $157 to $167 per cwt down $5.
The USDA choice cutout Wednesday was down $9.96 per cwt at $217.93, while select was off $5.09 at $208.08. The choice/select spread narrowed to $9.85 from $14.72 with 159 loads of fabricated product sold into the spot market.
No deliveries were tendered for delivery against the Aug live cattle contract Wednesday.
The CME Feeder Cattle index for the seven days ended Tuesday was $128.41 per cwt, down $0.37. This compares with Wednesday’s Aug contract settlement of $133.57, up $0.70.