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Beef's Raging 'Bull' Market May Be Ending

Beef's Raging 'Bull' Market May Be Ending
A market adjustment is coming at some point. It always does. When and by how much has everyone in the business scratching their heads.

Beef prices continue at historic-high levels. The big question is "How long can this go on?"

Packers are experiencing a bottom-line squeeze. It's been hard for them to fully pass on their true costs to retailers – even though retail markets have been passing on higher meat case prices to consumers.

Early this year, consumer-level beef prices averaged a record high of almost $5.10 per pound. Beef prices are 10.2% above last January, with steak prices up 9.7% and ground beef prices up 10.6%.

Pork prices are 6.3% above last January's level. Poultry prices are 5.2% above prices last year at this time, with chicken prices up 4.1% and other poultry prices (including turkey) up 9.2%.

How long can current high prices continue?

USDA projects the 2012 Consumer Price Index for food-at-home (grocery store) prices to increase 2.5% to 3.5% and food-away-from-home (restaurant) prices forecast to rise 2% to 3%.

Nearing a turning point?
Many factors interact and affect beef's final selling price.  Exports have been markedly higher. The first two months of this year averaged 7% over last year – a booming export year.

Seasonal demand is typically another plus this time of year. Retailers start featuring beef for the "grilling season". Fed markets typically respond positively.

Another "positive" that'll at some point turn to a negative is heavier carcass weights on feds. Cattle feeders naturally want to "hold out for that highest price".

In the short term, less beef goes on the market. But at some point, those heavy cattle must be marketed and that extra tonnage puts downward pressure on prices.

There are indications that cow/calf producers are finally holding back replacement heifers. That'll reduce fed cattle supplies in the short term, but boost them three or four years from now. Remember, markets react in anticipation, not after the fact.

A more immediate market "bear" factor could bite the "bull" much sooner – record summertime gas prices. When families must budget $4 gasoline, money available for quality beef suffers.

Combining decreased demand higher cattle coming to market in the second quarter, it's hard to imagine how prices will stay at current levels. The latest cattle-on-feed report showed a 2% increase over a year ago.

Near term, we'll probably see feds at over $1.30 per pound, live basis. But don't be surprised if U.S. beef consumption drops from last year's 63 pounds per capita to 52 pounds in the coming year.

We can't really blame decreased demand. We'll have more beef available. Now may be the time to worry that if consumers get used to eating less beef, will they return as aggressive customers when prices eventually come down?

A market adjustment is coming at some point. It always does. When and by how much has everyone in the business scratching their heads.

Harpster is a Penn State animal scientist and a beef cow-calf producer.

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