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Consumers communicate with their dollars

We're all consumers, but as beef producers we make up less than 1 percent of the whole group of customers we aim to please. A few “activists” use media stunts to distort the demand picture but, overall, consumers communicate with us by spending.

As millions of consumers buy — or pass by — billions of beef cuts over time, retailers, restaurateurs and exporters receive those signals first. They try to make sense of the signals, and then send their orders to packers, more of some items, fewer of others. Gradually, trends develop and packers pass price signals along to producers. Feedlot buyers factor in weather, grain markets and 100 other things, and bid on ranch calves.

At the ranch, we get a lot of ghost images, snow and generally poor reception, so any developing trend moves at glacial speed, complete with reversals. Nobody can guess if an apparent trend will last long until it's been around for years. Producers fear taking action on consumer signals because trends change, and those activists keep nattering.

Producers sometimes wonder at the lack of direct connection between prices for cattle and beef, but the indirect link has long-term advantages. Look at consumer spending from the end-product side:

Retailers: Beef demand has increased in part because of their skill at determining the market-clearing price, readjusted at least weekly. Prices vary by quality grade, brand and location. Some stores use “featuring,” selling commodity beef cuts at fire sale prices to build traffic. Other stores focus on quality, letting that consistent taste and value make beef a destination item rather than a loss leader.

Live cattle prices may go up and down 20 percent or more in a year. Models that have retail beef prices following live cattle show increased sales as prices fall, but increased resistance to rising prices later. It's an industry that must sell perishable products during a short shelf life. That's why a predictable selling price is the only way beef competes with other protein alternatives in the meat case.

Food service: As beef eating quality gained in the 1990s, steak houses became one of the fastest growing segments of the restaurant industry. Some of them pencil in prices daily, but most print menus with fixed prices. Like retailers, they've learned it is easier to keep customers happy with stability.

When beef demand increases, they must order more product at higher prices. Restaurateurs may add seating space to serve more customers at the same prices, or reprint menus, or both. Increasingly, managers use portion control to offer a lower priced but smaller steak when they raise average entrée prices.

Exporters: International demand is overwhelmingly for high quality-grade beef, but not for the steaks so prominent in American restaurants. Cuts from the chuck, round and flank lead sales, with USDA Choice the benchmark.

Value added: Companies that buy beef for further processing are important in the future of beef demand because ease of preparation is becoming more important for consumers. With the huge investment in research and development, facilities and marketing behind every value-added beef product, these companies insist on consistent quality and often buy on long-term contracts to remove price peaks and valleys.

In each area of beef demand, stable clearing prices beat the alternative of fluctuating prices.

The industry works this way because consumers dictate the market. It's true no matter how fuzzy the signal is when it gets to the ranch. That means we must do more than just produce a critter, call it beef and say, “It's what's for dinner.” That slogan is a challenge for each producer to work at winning the center of the plate, no longer a given.

According to the Food Marketing Institute, food safety is the most basic consumer demand item. When science finds ways to enhance that aspect on the farm and ranch, producers must act.

Given safety, the top concern is taste. Only 8 percent of adults in the 2000 Opinion Research Corporation survey said price is the most important factor in meal planning, but it was in the top four.

Steve Suther is director of industry information for the Certified Angus Beef Program.
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