Wednesday, January 11, 2017

How Supply And Demand Have Affected Beef Prices Recently

See Beef prices down — but still lagging cattle price drop. There have been multiple forces over the last couple of years causing supply and demand to shift in both directions at different times. Excerpts:

"With the perfect storm of drought and disease-caused scarcity of not only beef but also chicken and pork now over and foreign demand tempered by the high dollar, U.S. consumers have seen their dollar stretch further at the meat case than two years ago, when beef prices were at record highs."

So with drought and disease over, supply increases pushing price down. The high dollar reduces foreign demand, which also lowers price.

"Although cattle prices may have dropped 40 percent over 2016, consumers haven’t seen that kind of price drop as retailers remain in holdout mode and market forces such as competition with other proteins and global demand remain volatile."

If beef producers are not sure what the competition will look like, they might be betting it is better not to lower prices any more. Same thing with foreign demand. If they think that might come back, then there is no reason to lower prices any more than they have.

"consumers can expect about a 10 percent reduction from 2014 highs of about $6 per pound for beef, but other animal proteins such as chicken or pork still might seem like relative bargains."

"“Pork and chicken kind of ramped up their production very quickly, and then basically we saw a historic downturn in the cattle market,”"

So if supply of pork and chicken go up, then that lowers their prices. Then beef producers have to cut theirs or not raise them.

"“Overall, the retail price of beef in general is currently lower than the price last year at this time,” H-E-B spokeswoman Dya Campos said in an email. “Consumers will see lower prices on beef items, particularly grinds where we have on average 50 cents lower retail prices than last year.”"

"“Although food commodity costs have declined in recent months, certain chain restaurants continue to face a challenging environment, which includes increases in labor costs around the country,” Rob Green, executive director of the National Council of Chain Restaurants, said in an email. “Competitive pressures remain as well, as segments of the industry are facing headwinds resulting from an uneven economic recovery and increasing competition for a consumer’s food dollar.”"

Higher labor costs reduce supply which in turn raises prices. So that might be offsetting some of the price decreases.

"producers,... are ... hoping the new administration will cut trade pacts that are more profitable than the ones Trump criticized on the campaign trail. For example, import tariffs with Japan are now at about 38 percent.

"“As these developing countries, as their economy improves, they all want beef on their plate"

If foreign demand can come back up, that would raise prices

"By way of review, it was weather that caused the 2014 price shock. Prolonged drought had caused pastures to wither across a wide swath of U.S. cattle country, and ranchers were forced to move cattle to whatever green pastures they could find or quickly liquidate their herd."

"The end of the drought led ranchers to start rebuilding. Since it takes roughly two years from pregnant cow to feedlot fattening, no one in the industry was surprised to see supplies rebound by the close of 2016."

So the bad weather reduced supply that caused prices to rise. But then supply increased as the drought ended, helping to lower prices.

"At the same time ranchers were rebuilding, chicken and pork producers were dealing with problems such as porcine epidemic diarrhea and the Midwestern bird flu epidemic that wiped out their stocks."

So if pork and chicken producers saw disease problems, that reduces their supply and raises price. Then beef producers don't have to lower theirs.

"“Pork, once they got all their issues straightened out, they’re able to turn around production in about three months. Chicken can turn their production in around 10, 11 weeks. … All of a sudden we just had these proteins coming in, and I think when you throw that combination together, we just saw prices decline,”"

But then supply increased after the diseases were gone from pork and chicken. So that increases supply and lowers price. Then beef producers have pressure to lower theirs.

"Cattle dropped $34 per hundredweight during 2015, selling for $132 per hundredweight last January. Feedlot operators that were losing $300 to $400 a head on expectations of continued high returns started paying less in 2016, Texas A&M AgriLife Extension Economist Jason Johnson said. That brought 2016’s average down to $124. For 2017, the projections are expected to drop a bit more, to an average of $121."

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