CowCalf Corner: Beef Demand is the Key to Higher Cattle and Beef Prices

Feeder and fed cattle and boxed beef prices are all near record levels in early 2010 and expected to go higher.  Just how much higher is a much more difficult question.  Beef production is forecast to decrease 2 to 2.5 percent in 2011.  Considering beef as an aggregate, the demand estimate estimates from several research studies would suggest an increase in retail prices ranging from about 2.9 percent to 6.25 percent.  A few studies have resulted in very inelastic demand estimates that would indicate roughly a 10 percent increase in prices as a result of a 2.5 percent decrease in beef production.  It seems clear that the supply fundamentals will support potentially significantly higher wholesale and retail prices.

However, there are many factors that will affect the situation in 2011.  First, the demand studies are averages over several years and may not reflect the state of beef demand in its current post-recession weakened state.  Secondly, beef is not really an aggregate product but is many markets for individual cuts that interact with each other.  Middle meat demand continues to be the weakest due to the recession but has the potential to improve and pull prices significantly higher.  International trade will be an important component of total demand not in terms of quantity but also the relative mix of various product types and qualities in the market.

Additionally, annual estimates of production and demand may mask timing and variability during the year.   It appears that beef supplies will be relatively larger in the first half of the year and may drop sharply by the fourth quarter.  The broader meat complex will also be important and the situation with respect to pork and poultry will obviously impact retail prices for beef.

Indications are that beef demand in the last quarter of 2010 did improve and that is supporting higher boxed beef prices in early 2011.  The impact on retail prices has not been too apparent yet but sustained higher wholesale prices will put more upward pressure on retail prices as the year progresses.  It seems clear the supply pressure will grow even stronger and it will be demand, at particular points in time and for many beef products, that will determine just how high retail beef prices might go and how fast they will change.

Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist

This entry was posted in Markets.

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