By Glynn T. Tonsor, Associate Professor, Department of Agricultural Economics, Kansas State University
Since mid April the market has received three critical pieces of information including updated Cattle on Feed and Cold Storage as reported by USDA and Beef Demand information as reported by Kansas State University. It is useful to pause and aggregate the key points of these reports to get a handle on the broader supply and demand situation underlying beef and cattle markets.
Cattle on Feed (1): Cattle on Feed inventory on April 1st was down 1% while expectations were for a 0.4% increase. March marketings were down 4%, which is a slightly larger reduction than pre-report estimates of 3.5%. Placements in March were down 5%, which is substantially lower than the pre-report expectation of +1.6%.
Cold Storage (2): Total red meat supplies were down 8% on March 31st from prior month and down 14% from last year. Looking specifically at beef supplies, the 20.8% decline since last year stands out. This 20.8% decline in beef supplies is the largest reported since April of 2005.
Beef Demand (3): The Choice Retail Beef and All Fresh Beef Demand (AFBD) Indices for the first quarter of 2014 each fell by 1.8%. This is the first quarter the AFBD Index experienced with a year-over-year decline since the second quarter of 2010. The AFBD index decline reflects per capita consumption declining by 5.6% and real (inflation-adjusted) prices increasing by 4.9% ($5.32/lb nominal price). If real prices would have increased by 6.8% then the AFBD index would have been unchanged from Q1.2013. (4)
Overall these three points of information are reinforcing a similar message:
1. beef supplies are tight and are likely to get tighter;
2. historically high retail prices are being realized yet even higher prices are needed given reductions in availability.
In aggregate, these signals offer support for both cattle and beef prices in the near term. While notable uncertainty remains, the underlying situation of tight cattle and beef supplies coupled with reasonably stable demand is a positive condition for industry stakeholders to make management, marketing, and possible expansion decisions within.
Source:osu.edu