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Will Cattle Herds Expand Due to Better Prices (Dec 13, 2013)

On the production side of the beef industry, the focus has become whether the nation's beef cow herd will begin to grow and eventually result in more beef production, said Darrell R. Mark, Adjunct Professor of Economics at South Dakota State University.

"On the demand side of the industry, such growth could eventually mean an increase in beef consumption. However, even if beef cow numbers are modestly higher at the beginning of 2014, it will likely be 2016 before beef production, and therefore beef consumption, begins to increase," Mark explained.

In fact, Mark said beef consumption is forecasted to decline about 5 percent in 2014 to about 53 pounds per person (retail weight equivalent). In 2015, beef consumption could drop to 52 pounds per person.
 
The reason beef consumption is declining, Mark said, is because beef production has decreased as cattle feed costs have increased dramatically in recent years. As a result, the reduced quantities of beef available have translated into record beef prices this year. From January through October, the price of all fresh retail beef averaged $4.93 per pound.
 
"That's up 5.3 percent compared to the same time period in 2012. In October, the price of all fresh beef set a new record high at $4.98 per pound. Such higher prices, driven by smaller quantities, have many wondering whether consumers will be willing and able to continuously pay more for beef," he said.
 
Mark said consumer demand a valid concern - one that is difficult to project for future years because it involves forecasting changing consumer tastes and preferences. However, available information about beef demand thus far in 2013 - while beef prices were continuously setting new record highs - Mark said would suggest that beef demand has been better than would have been expected.
 
Consider these facts:
 

  1. The demand for all fresh beef for the first three quarters of 2013 was about 3% higher than the same time period in 2012. That's based on a demand index that considers both quantities demanded and prices. In Econ 101 terms, it represents an outward shift in the demand curve for beef.
  2. The National Restaurant Association reports that its Restaurant Performance Index (RPI) rose to a four-month high in October 2013. While this considers more than beef sales, dining out accounts for 40-50% of consumer beef purchases in the U.S. The RPI was 100.9 in October, which indicates slight expansion in the industry. Overall, the restaurant industry appears to be cautiously optimistic about future sales.
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