dr. lee schultz - beef demand: clarifying concepts, summarizing status, and discussing future...

Department of Economics

Beef Demand: Clarifying Concepts,

Summarizing Status, and Discussing

Future Opportunities

Presentation at Iowa Cattle Industry ConventionDecember 9, 2014

Lee SchulzAssistant Professor

Extension Livestock Economist


Iowa State University

[email protected]

(515) 294-3356

http://www.iastate.edu/



Iowa’s Beef Cattle Industry Statistics




What is Beef Demand?

• Critically Important, Yet Often Confused

– Demand strength

Reflects consumer valuation of beef

• underlies total $ available for the industry

» drives prices and profitability for all




Example to Think About

• When shopping for steak and you observe a

buy-one-get-one free sale, do you ever buy

more than just one steak?

– The money in your wallet, the physical

characteristics of the steak, etc. did not change

– Yet, your “per capita consumption” of steak

increased if you bought 2 rather than 1 steak

o EXAMPLE OF DEMAND NOT CHANGING

» You bought more solely because of lower prices





• Per Capita Consumption is NOT

Demand

– Per capita consumption

= (Domestic Production + Imports – Exports +

Cold Storage Adjustments ) / Population

– All quantity values; no prices in derivation





• Beef Demand– Schedule of beef quantities consumers would

purchase over a range of prices

– Refers to the “demand curve” economist speak of

• Quantity of Beef Demanded– Quantity of beef consumers will purchase at a

given price

– Refers to a point on the demand curve




Standard Supply-Demand Diagram




What Does a Demand Index Tell Us?

• Demand index indicates how a demand curve

moves from one year to the next

– Measures shifts in demand over time relative to a base

year (i.e., 1980=100)

Provides no explanation for why demand may have

changed

» Only indicates that changes have occurred




History, Status, and Future of Beef Demand

If demand in 1998 and 2010 would have been as strong

as in 1980 then real beef prices in those two years

would have been more than DOUBLE what actually

occurred





• 2009 Demand Study, Cattlemen’s Beef Board – Income/expenditures (+ in most years)

– Health and Nutrition Atkins was +; Zinc, Iron, Protein +; otherwise -

– Convenience (-)

– FSIS recalls (-)

– Relative protein prices (-)




17th consecutive yr/yr increase (since 2010:Q3); Q3.2014 = +10.3%

Actual Quantity & Price Changes:

1990: 67.8 lbs (per capita cons.); $2.01 (real All Fresh Price)

2013: 56.4 lbs (per capita cons.); $2.11 (real All Fresh Price)

Q3. 2014: Per Capita Consumption = -4.7% (yr/yr)

Real All Fresh Prices = +14.3% ($5.76/lb nominal price)

IF Real All Fresh Prices +3.7% = 0.0% Demand Change





C-P-65A

06/27/14

Data Source: Bureau of Economic Analysis & USDA-ERS,

Compiled and Analysis by LMIC

Livestock Marketing Information Center

Given LMIC forecast 54.3 lbs/capita) in 2014:

No demand change IF 2014 All Fresh Retail Price

= $517.8/lb (+4.8% from 2013)






• 2013 Beef Demand Study; Cattlemen’s Beef

Board; Checkoff Funded(http://www.beefboard.org/evaluation/130612demanddeterminantstudy.asp)

– T.C. Schroeder, G.T. Tonsor, and J. Mintert

• Goal: Identify demand drivers to focus effort on

• Evaluated 7 Broad Demand Determinants – Food Safety (E.coli, Salmonella, BSE, etc.)

– Product Quality (Freshness, Tenderness, Convenience, etc.)

– Price ($ per pound)

– Nutrition (Protein, Iron, Zinc, etc.)

– Health (Amount & type of Fat, Cholesterol, Sodium, etc.)

– Sustainability (Environment, Labor, Community dimensions)

– Social Aspects (Animal Welfare, Country of Origin, Organic, etc.)





• 2013 Beef Demand Study; Cattlemen’s Beef

Board; Checkoff Funded(http://www.beefboard.org/evaluation/130612demanddeterminantstudy.asp)

– T.C. Schroeder, G.T. Tonsor, and J. Mintert

• Prioritizing Broad Demand Determinants – Most important to focus on:

Food Safety (impactful & feasible to be influenced)

Product Quality (impactful & feasible to be influenced)

Price (impactful yet less feasible to be influenced)

– Secondary importance to focus on: Nutrition (middle ranking in impact and feasibility)

Health (middle ranking in impact and feasibility)

– Less important to focus on: Sustainability (lower ranking on both impact and feasibility)

Social Aspects (lower ranking on both impact and feasibility)





• Export Demand Critically Important Also

– In 2013, beef and beef variety meat exports amounted to 1,172,792

metric tons (2.6 billion pounds) worth $6.2 billion

– The top 10 exported beef cuts represent 85% of total U.S. beef

exports

– The U.S. beef export value equated to $244.96 per head of each

steer and heifer processed in 2013

– 13.2% of U.S. beef and variety meat production was exported in

2013

Source: USMEF




• Over the next 10 years– Global meat consumption projected to grow 1.9%/year

– Beef exports projected to rise even quicker at 2.8%/year

• Increasing population & rising per capita incomes

• Changes in consumer preferences

• Improvements in product characteristics– Convenience, tenderness, food safety, health, nutrition, etc.

• Favorable opportunity to major beef exporters

• To capitalize on current and expected beef demand

strength, U.S. needs to increase overall beef production– Initiated by expanding breeding herds




Department of Economics Source: USDA/ERS

USDA Agricultural Projections to 2023(http://www.ers.usda.gov/publications/oce-usda-agricultural-projections/oce141.aspx)





• U.S. beef cow inventory:• 29.30 million in 2013

• 33.67 million in 2023 (+16.4% from 2014; +/- 2000 levels)

• U.S. domestic per capita red meat & poultry cons:• 221 lbs in 2004-07 (Beef=65.7 lbs; Pork=50.4 lbs; Poultry=103.8 lbs)

• 203 lbs in 2013 (Beef=56.5 lbs; Pork=46.6 lbs; Poultry=99.0 lbs)

• 215 lbs in 2023 (Beef=52.1 lbs; Pork=48.6 lbs; Poultry=113.5 lbs)

• U.S. beef exports:• 2.46 billion in 2013

• 3.41 billion lbs in 2023• 39% increase from 2013 levels; would be 13% of forecasted production



Department of Economics Source: USDA/ERS






• “Developed World Changes”

• Declining global economic prevalence, populations, & per

capita meat consumption

• U.S./Canada (2.6% GDP/yr)• Different dependence on domestic consumption

• Japan (1.1% GDP/yr)• Major meat importer currently but will exporters care less going

forward?

• Europe (1.6% GDP/yr)• Will influential role as “food thought leader” persist?





• “Developing World Changes”

• Increasing global $, population, & per capita meat

consumption

• Africa & Middle East (4.7% GDP/yr)• Arguably the least understood growth market

• Latin America (3.9% GDP/yr)• Growing producer & consumer

• China (7.2% GDP/yr)• Canada has access but U.S. does not

• South Korea (3.1% GDP/yr – but 10x per capita inc. of China)• U.S. has access but Canada does not




USDA’s Beef Long-Term Trade Projections (as of Feb 2014)

Data Source: USDA/ERS

Beef importers: thousand 2013 to 2023 Growth

metric tons, carcass weight 2012 2013 2014 … 2023 % Total

Japan 737 767 781 … 814 6% 47

South Korea 370 370 398 … 584 58% 214

Taiwan 116 135 135 … 150 11% 15

Philippines 121 117 115 … 136 16% 19

China 99 400 475 784 96% 384

Hong Kong 241 450 550 806 79% 356

Other Asia 301 346 379 … 635 84% 290

European Union 1/ 348 350 350 … 335 -4% -15

Russia 1,023 1,000 1,020 … 1,213 21% 213

Other Europe 58 64 64 … 70 9% 6

Egypt 250 215 230 … 315 46% 100

Other N. Africa & M. East 743 704 739 … 1,105 57% 401

Mexico 215 225 235 … 534 137% 309

Canada 301 320 315 … 326 2% 6

United States 1,007 1,024 1,027 … 1,324 29% 300

Major Importers 5,930 6,487 6,814 … 9,129 41% 2643

1/ Includes intra-EU trade.

Projections were completed in November 2014



Department of Economics Source: Policy Analysis Computing & Information Facility In Commerce

Exchange Rates




USDA’s Beef Long-Term Trade Projections (as of Feb 2014)

Data Source: USDA/ERS

Beef exporters: thousand 2013 to 2023 Growth

metric tons, carcass weight 2012 2013 2014 … 2023 % Total

Australia 1,407 1,530 1,545 … 1,506 -2% -24

New Zealand 517 547 536 … 576 5% 29

India 1,411 1n650 1n750 … 2,561 55% 911

Other Asia 125 1201 120 … 209 73% 88

European Union 1/ 297 260 270 212 -18% -48

Argentina 164 180 220 336 86% 156

Brazil 1,524 1,800 1,940 … 2,554 42% 754

Canada 335 320 325 … 486.5 52% 167

United States 1,113 1,115 1,043 … 1,548 39% 433

Major exporters 6,893 7,522 7,749 … 9,988 33% 2466

1/ Includes intra-EU trade.

Projections were completed in November 2014



Department of Economics Source: Policy Analysis Computing & Information Facility In Commerce

Exchange Rates



Department of Economics Data Source: USDA/ERS

Top U.S. Beef Export Destinations




Monthly U.S. Beef Exports and Boxed Beef Prices

Data Source: USDA/ERS, USDA/AMS




Oct-14/Sep-14 Oct-14/Oct-13 Year-to-Date

Country Percent Percent 1,000 lbs Percent

Mexico -24.3% -18.5% 45,182 14.0%Japan -6.0% 15.4% -8,019 -1.4%Canada 8.1% -28.2% -93,699 -23.3%South Korea 25.8% 21.9% 43,740 21.5%Hong Kong 26.3% -1.4% 56,841 20.7%Taiwan 20.9% -2.1% 5,092 6.1%Vietnam 72.5% 118.5% -3,444 -34.2%Russia -107 -80.4%Egypt 218.2% -94.5% -45,172 -93.6%Netherlands -17.7% 1.8% 391 1.3%Philippines 5.4% 24.4% 4,965 25.5%

Other Countries 17.4% -7.0% 5,275 3.0%

Total 3.2% -3.4% 11,045 0.5%

U.S. Beef Exports, Jan-Oct 2014

Source: USDA/ERS

WASDE U.S.

Beef Exports (mil lbs)

2013: 2,590

2014: 2,599 (+0.3%)

2015: 2,525 (-2.8%)




Thank You!More information available at:

Iowa Farm Outlook & News www.econ.iastate.edu/ifo/

Ag Decision Maker www.extension.iastate.edu/agdm/

ISU Estimated Livestock Returnswww.econ.iastate.edu/estimated-returns/

ISU Livestock Crush Marginswww.econ.iastate.edu/margins/

http://www.iowabeefcenter.org/



dr. lee schultz - beef demand: clarifying concepts, summarizing status, and discussing future...

Business

future of beef demandif

demand index

demand changehistory

real beef prices

steak example of demand

demand curve economist

confused demand strength

consumer valuation of