Consumer resilience to meat prices is being tested like never before, and more severe tests are likely over the next few years.
With the beef industry trying to rebuild its herd after years of drought-reduced declines and the pork industry hit by the Porcine Epidemic diarrhea virus, meat prices are poised to work their way unevenly higher, punctuated by seasonal dips and occasional profit taking setbacks by speculators.
The USDA’s boxed-beef cutout values are reaching new record highs every week, and the pork cutout value is bumping record highs again this week.
The USDA’s daily cutout value for choice beef was up $1.52 per cwt Wednesday to a record $262.86, and its select cutout rose $1.80 to $260.83. Choice is up $10.27, or 4.07%, for the week, while select is up $12.12, or 4.87%.
The weekly USDA pork cutout reached its apex two weeks ago when it hit $136.11 per cwt, $36.30, or 36.37%, higher than a year ago. The peak also was $51.77, or 61.38%, higher than the five-year average, which does not include last year.
That higher pork value is beholding mostly to crossover demand as consumers seek alternatives to record-high beef prices since lower hog slaughter is being countered with higher dressed weights.
The challenging red meat markets can only get more challenging as the PED virus spreads among hog herds and the beef industry retains more heifers for breeding. Until a vaccine for PED is developed, the hog industry will struggle to keep up, and the results of retained heifers won’t be felt in the fed cattle market for at least two years.
MARKETS BECOME FRIEND, FOE
But cattle markets are becoming the enemy of herd rebuilding just as much as they are becoming its ally.
On the one hand, record-high fed cattle prices encourage cow/calf producers to hold back a few extra heifers to rebuild their cow herds and give them more stocker and feeder cattle to sell for extra income.
On the other hand, high demand for hamburger is pushing prices for cull cows to record highs and encouraging cow/calf producers to shave off a few extra cows each season.
The demand for ground beef has pushed prices higher and increased imports or lean product from the likes of Australia and New Zealand. The US now is Australia’s biggest export market for lean grinding beef.
High beef prices also bring fears among cow/calf producers that consumers won’t abide record-high prices for long. They fear their investment in herd rebuilding will be met by consumer backlash against the very prices that encouraged them to expand, and they will be left with hefty losses.
So far, though, consumers appear to be stepping up to the plate, paying more for beef without much complaint. So far.
STRONGER ECONOMY FUELING BEEF SALES?
A stronger economy may be behind consumer acceptance of higher product prices. US Gross Domestic Product, a measure of economic strength, Thursday was reported up 4.0% in the second quarter easily beating expectations of 3.0% growth.
Consumer confidence also is reported higher as more people are working than a year ago.
In the end, it appears the bull market in cattle is here to stay for some years.
Societe Generale Thursday said as much as the bank stuck with its forecast for higher prices than many investors are expecting. The beef/pork price ratio is trending above its five-year average, suggesting consumers prefer beef to pork. What’s more, June feedlot placements indicate tight fed cattle supplies in coming months.