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Producers dealing with economic challenges, too
Published 5/26/2009 in Beef Empire Days
By SHAJIA AHMAD
The U.S. beef industry is weathering tough times along with the rest of the American public and private sectors, as cash-strapped consumers "trade-down" their meat cuts, thereby decreasing profits for producers.
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Brad Nading/Telegram — Feed yard cowboys Gilbet Melindez, left, and Leco Garcia move cattle from one pen to another at Finney County Feedyard Inc., located northeast of Garden City.
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Brad Nading/Telegram — Cattle in a feed yard. While consumption of beef is on target to match last year, consumers are buying cheaper cuts, so producers aren't coming out ahead.
As unemployment continues to rise and consumer confidence worsens, retail demand for beef has changed, said Todd Johnson, an executive director with the Kansas Beef Council.
The director of the beef promotion organization said consumers have been altering what they buy from retail meat cases and from restaurant menus during the last year, turning to less expensive cuts of beef such as ground or roast for their families.
Part of that "trading-down" trend in the retail beef industry — an annual $75 billion dollar business — extends to the food service industry, as well, said Johnson, because fewer individuals are buying high-priced meats at white tablecloth restaurants, where steak is typically the main item on the menu.
"Even business travel has decreased and people are eating out less often, so we've seen the demand for prime cuts suffer," he said.
Changes in demand have dropped down the retail grocery prices of special cuts such as rib eye steaks, as well, hurting feedlot operations and livestock farmers in the end, Johnson said.
"We know that more people are buying beef and cooking it at home in order to save money and build a more economical meal," Johnson said. "But steaks that once cost $8 or $9 a pound, now cost about $7, and increasing sales at a lower cost does not generate money for producers."
The American public, which consumes about 28 billion pounds of beef each year, is consuming just about the same amount of beef this year as last year even if the form of the meat — ground beef and chuck roast — is changing.
Americans are consuming about two pounds less beef this year than the 65 pounds they consumed in 2008, according to CattleFax, a beef industry research service. Over the last decade or so, annual American beef consumption has decreased from 70 pounds per capita in the early 1990s to nearly 63 pounds per capita today, due in part to a historically decreasing supply of cattle herd over the last few decades despite a growing human population and increasing demand for beef.
The tightening beef cattle herd — 31.7 million, the smallest U.S. herd since 1963 — is driven in part by parts of the country that have suffered long-standing droughts, where it is no longer economical to raise cows on grass and rising feed prices.
In addition, if trends in meat choice trade-downs continues, the beef industry won't be jump-starting the cattle industry anytime soon.
"We also need to see economy turnaround, so the consumer has more purchasing power," Johnson said. "If less money is flowing back to the producers, they'll have less and less economic incentive to raise and provide cattle. That's part of the dilemma we're in."
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