Beef Demand Gains May Limit Seasonal Price Pressure

After the Thanksgiving Day holiday, beef consumption usually takes a header, and many expect demand for holiday items like ribs and loins to pressure the market again this year.

However, the overall decline in the carcass cutout value may be limited.  Gains in demand for other cuts often overpower losses in the holiday items, which are pushed up out of proportion to other cuts in the weeks leading up to the holidays.

Record- and near record-high beef prices have generated a lot of concern about the sustainability of beef demand beyond the holidays.  Once the holiday buying is done, they fear total demand will drop.

They reason that Christmas credit card bills in January, combined with the cold winter weather will damage demand.  The only winter holiday type observance is Valentine’s day, which is not known for its extreme beef demand.

That leaves next spring’s grilling season as the next solid seasonal beef demand period.




But some say beef demand remains strong in spite of higher prices.

Jim Robb, senior agricultural economist at the Livestock Marketing Information Center, says per capita consumption and demand are different.  Consumption can be influenced by supplies while actual demand is holding steady or increasing.

But demand is hard to measure, so economists resort to calculating demand based on per-capita consumption, the inflation adjusted retail beef price and a few economic assumptions.  The result often is displayed as an index.

A continuous chain of calculated demand indices says beef demand in the third quarter of this year was 87, for the base year of 1990, suggesting beef demand is 13% lower in 2014 than it would have been if the demand profile had remained at the 1990 level.

However, the index also climbed 9% in the third quarter from a year ago, a big change, which incorporates per capita beef consumption being down 4% and real beef prices rising 14% from a year earlier.  So, while consumers are being offered less beef because of production declines, they continue to step up with their dollars.  Nothing is forcing them to pay 14% more for beef.




Consumers may be willing to pay more for beef because they have more.  Crude oil prices are declining, and lower gasoline prices translate into more income that can be spent on other items like beef.

A chart of NYMEX crude oil prices shows the latest strong peak occurring the week of June 9 when it touched $107.73 a barrel, $43.98 above last week’s low of $63.75, a drop of 40.82%.

Last week’s NYMEX crude oil market closed higher than the previous week, but OPEC’s decision to keep production steady in order to guard market share is expected to keep this market on the defensive.  Some analysts even have said gasoline prices in some states could drop below $2.00 a gallon in coming months.




After a strong midmorning showing Monday, the USDA’s afternoon boxed-beef cutout value ended mixed.  At least part of Monday’s futures rally was keyed on the midmorning quote, so this may be seen as a bearish influence in today’s trade.

The USDA’s choice cutout value was $257.48 per cwt, up $0.08, but the select cutout was down $0.51 at $245.34.  Only 49 loads of fabricated product were sold into the spot market, which may account for the late-day weakness in beef prices.

But feeder cattle remain strong on tight supplies with the CME Feeder Cattle Index up $0.45 per cwt at $240.45, well above the Jan futures contract’s Monday limit-up settlement of $234.07.