Spend Matters welcomes this guest article by Luana Clapis of Mintec.
The world produces enough beef for everyone to eat 12.25 pounds per year. Surprisingly, at the top of the list of highest beef consuming places is Hong Kong, where a massive 123 pounds of beef is consumed per person, 60% more than an average American ( the U.S. has the fifth-largest per capita consumption). However, from a pure volume perspective, America is the biggest consumer of beef in the world with approximately 11 million tonnes consumed, followed by nearly 8 million tonnes in Brazil and Europe.
It is well known that the U.S. population has a love affair with beef — look no further than the numerous fast food chains and steakhouses spread out across the country. Last year, however, the U.S. was definitely “on a trial separation” with beef, as prices jumped to record levels.
U.S. beef consumption has been falling since 2002, but it hit a record low in 2014, thanks to high prices coupled with a fall in chicken and pork prices, prompting consumers to shift from hamburgers and steaks to poultry and pork. Fortunately for beef lovers, the situation is changing.
Cattle prices have plunged in the past six months and are likely to continue to fall. Prices have been falling since March, but between August and September they fell by 22%, reaching a 3-year low by the end of the month. What a change from this time last year!
In 2014, droughts in the U.S. and Australia negatively affected pasture condition and substantially reduced cattle production in both countries, leading to a rise in cattle prices. By January 2015, US cattle prices reached a record high, rising 23% year-over-year and 38% since January 2011. The shortage of beef supply meant that beef imports were substantially encouraged, while cattle producers, induced by high prices and supply shortage concerns, were prompted to purchase more cattle. Therefore, U.S. farms are currently heavily stocked with cattle.
The resulting increase in herd size, higher beef imports and weak consumer demand have all increased U.S. stocks, driving prices even lower. In response to these market conditions, and in order to support prices, farmers have chosen to maintain their heifers on feed instead of sending them for slaughter. Consequently, a very large number of cattle have been feeding for over 120 days, increasing the amount of heavy cattle, which will result in an increase in beef production when they are slaughtered.
With Thanksgiving fast approaching, retailers will fill their fridges with turkey, leaving less space for beef, which will contribute to a fall in demand. Beef prices may still be high in comparison to chicken and pork, but that difference is likely to fall. Maybe the U.S. love affair with beef won’t reach the divorce courts just yet.