While many believe rising pork and poultry production and steady to lower beef production will cause price spreads to widen and consumers to switch beef purchases to competing meats, such notions are not chiseled in stone.
Glynn Tonser, associate professor of Agricultural Economics at Kansas State University said there is no reason to believe such price spreads will affect consumer choices in the same way this time. Similarly, there is no rule that says future price imbalances will cause the same effects being seen today.
Among the various studies on the issue is one that says beef demand becomes more inelastic as supplies decline and prices rise.
Tonser said concerning the issue of consumer substitution, it is useful to step back and take a broader picture of what is happening.
EXPECTATIONS VS REALITY
At the heart of the matter is an expectation that rising beef prices relative to pork and chicken prices will lead to substantial substitution of beef for these competing meats.
Many retailers will say beef really competes with chicken, not pork. They offer no explanation, but it may be due to the sharper price difference.
Tonser also said short-term changes are interesting and worth monitoring, it also is important to consider longer-term adjustments in the US public’s willingness to substitute pork or poultry for beef.
Two prominent meat demand studies published in the mid-1990’s concluded that pork and poultry are substitutes for beef. These studies relied on data stretching back to 1970, but their conclusions align with current concerns in the beef industry regarding substitution.
However, two newer studies published this decade utilizing data going back only to 1982 did not find statistical evidence of pork and poultry being substituted for beef.
The clear implications from the four studies shows the magnitude of substitution from beef to competing meats may well be declining over time.
REASONS NOT STUDIED
The studies did not delve into the reasons for such a demand shift, but some possibilities include the increased prevalence of dual-income households, changes to more away-from-home meals and general changes in preferences.
Some other possibilities include changes to the products themselves and shifts in consumer knowledge of the products and what provides a good eating experience. The rise of branded beef products like Certified Angus Beef, Rancher’s Reserve and others appears to be educating consumers to the fact that choice beef tastes better than select.
Over the same period, pork producers have met the challenge of lean meat production head on. The result has been a very lean, consistent product that does not have the same flavor notes as the product of old.
Chicken producers have focused on production efficiencies, product consistency and versatility and price. The product carries the flavors of various marinades and coatings well.
CASH FED CATTLE MARKETS TRADE LIGHTLY
Light trade was reported in cash fed cattle markets Thursday at $154.40 to $155 per cwt on a live basis in Kansas. However, most asking prices held at about $158 to $160. No dressed-basis trades were reported, but bids ranged from $242 to $245 with asking prices holding at $250 to $252.
Beef prices Thursday were slightly lower, with the USDA choice cutout at $247.19 per cwt, down $0.47, and the select cutout at $240.66, off $0.07. Volume was light to moderate with 89 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Wednesday was $225.74 per cwt, up $0.71.