Q & A with Ron Plain on Beef Supply and Demand
by Brandi Buzzard Frobose, Manager, Issues Communication, National Cattlemen’s Beef Association, a contractor to the Beef Checkoff
Supply and demand are two facets of an ever-challenging beef industry, especially during volatile times such as the present. Dr. Ron Plain, professor of agricultural economics and extension economist at the University of Missouri, gives insight to his predictions of the beef industry’s future and also his opinions on consumer trends.
Q: What challenges do today’s markets present for producers wanting to start or expand their operation?
RP: For those wanting to start a farming or livestock operation, U.S. land prices are at record high levels and it looks like they will probably hold steady or decline a bit. But it’s tough to be much of a farmer without land, so that’s a big hurdle as it has been for decades. Renting land is the option that a lot of new farmers take who don’t have a down payment for buying land. If you are fortunate enough to have a good reputation and can line up some people to rent your land, that’s probably the best way to go. We haven’t seen as much increase in pasture rental rates here in the Midwest as we have in crop land rental rates or overall land prices.
The other challenge is if you’re going to expand cattle numbers, record cattle prices when you sell means record prices when you buy bred heifers or middle aged cows to expand the herd. It takes a lot of money right now because most everything related to beef production is pretty expensive.
Q: We know that demand does not equal consumption - do you expect consumers to continue purchasing beef?
RP: Consumers have to change because the reality is that there’s less beef per person. Beef production is falling, cattle numbers are falling – there is less beef out there and more people in the U.S every year. The number of pounds of beef per person is falling, and people have to eat less beef per person. You can’t have it any other way. That is why we have record prices, because we’re forcing people to choose other things to eat. We’re rationing a short supply of beef by selling it at a record price. The key question from the livestock industry standpoint is what happens in 2017 when there is more beef; how quickly can we recapture those consumers? USDA is forecasting the average American is going to eat 40 pounds less beef this year than in 1976. There has been a long downhill slide in per capita beef consumption. As we increase beef production in the coming years, we’ll need to recapture those consumers. That’s the really important question, and the answer will have a lot to do with whether we continue to keep a focus on quality beef. It is difficult for cattle producers to focus on quality when the price difference between quality beef and commodity beef is small. But if we want to get those consumers back, we’ll want them to remember how enjoyable and tasty a good beef dinner can be.
Q: What, if any, trends are the markets showing in terms of niche beef production? Is demand for non-conventional beef slowing due to supply?
RP: The general rule of thumb is that when a commodity such as beef is expensive you have consumers less interested in finding more expensive forms to buy. When prices moderate, consumers get more adventurous and willing to pay more for a specialty product. I don’t think this year or the next couple of years are going to be particularly good years for niche beef relative to commodity beef. Beef is all going to be high priced for the next several years. Bottom line, I think niche producers are going to do well, too, but I don’t think the price gap will be as large as in the past. Niche producers are going to have high prices because all beef is valuable right now.
Q: We know that beef prices have climbed over the past few months; at what point do you think they will begin to plateau or decrease?
RP: The 2013 calf crop was smaller than the year before for the 18th consecutive year and this year’s calf crop will probably be the 19th year in that pattern. Fewer calves born leads to fewer cattle slaughtered. I’m guessing the 2015 calf crop to be larger than the year before which means somewhere around 2017 we should have more beef coming out of packing plants. Until then, beef supplies are going to continue to dwindle and, barring some unexpected event, beef prices in grocery stores are going to continue climbing and that’s going to support higher cattle prices.
Q: The unstable export market is problematic for beef producers. Do you see that climate changing in the near future?
RP: If you mean, “Do I think we’re going to get a run of stability,” then I’m afraid not. The reality is that foreign customers are the riskiest customers you can have because the government is involved. You need permission to cross international boundaries. Countries get mad at each other for reasons that have nothing to do with the meat business. You get disease issues – BSE in 2003 is an example of how you can lose all your foreign customers overnight. Another big thing is that the population and economy of the rest of the world is growing faster than the United States. A lot of low-income people are moving up to middle class and are going from vegetarian diets to meat diets, so the demand for meat is strong around the world. Exports of U.S. meat products have done well in the last decade, and I expect we’re going to continue to see big increases. The world economy will continue to grow and that will fuel demand. The U.S. livestock industry, ranchers and cattlemen are among the most efficient cost-wise in the world. We have a good packing system that is also low-cost to convert live animals into meat. Geographically we are well positioned because a lot of economic growth is in Asia. Being a Pacific Rim country we can put product there fairly quickly, so I’m optimistic on continued export growth, but it’s going to be risky and that’s the downside of it all.
Q: Any final points you’d like to make to beef producers about how to bolster demand in the future?
RP: This is going to be a great year for cow-calf producers. Last year was a good year as well. One of the things I would urge cattlemen to do is to use their extra profits to reinvest back into their operations. Better forages, better quality pastures, better genetics in the herd and better management of the herd. The reality is that a lot of improvements have to come during the good times because the bank won’t let you finance those improvements during the tougher times.
University of Missouri Agricultural and Applied Economics
Tags: Beef Issues Quarterly, Questions and Answers, Winter 2014, Year in Review 2014
December 6, 2014