Beef continues to fare well

Over the past few years we have been discussing the implications of rising beef, pork, and poultry production. It’s a simple story: if nothing else changes, higher production of beef will put downward pressure on beef prices, which means lower prices for fats, feeders, and calves. While this story is correct, the key assumption is that nothing else changes.

Fortunately, something else has changed. Specifically, beef demand is rising. In the 3rd quarter of 2017, it inched up 1-point year over year. In the 4th quarter it rose 2 points relative to 2016. In the first quarter of 2018 we saw a 4-point jump relative to the 1st quarter of 2017. Domestic demand for beef, especially higher value cuts is heavily dependent on strong consumer incomes. Unemployment is very low and GDP growth is strong, meaning that consumers are ready to spend money on good cuts of meat at the retail shelf and in their favorite restaurants.

Exports have also been strong this year while imports have held relatively steady. Export markets are crucial for beef and it is a stroke of luck that the primary trade battle at the moment is with a country that does not import a significant amount of our beef. Yes, higher tariffs on exports to China are a missed opportunity, but they are not as concerning as higher tariffs from Japan, South Korea, Canada, and Mexico would be.

Source: Drovers