The North American beef industry lives or dies by how well beef sells in grocery stores and in restaurants. Retail demand right now, at least in the U.S., is stronger than it has been in quite a number of years. Sales have more than recovered from the challenges in 2014 and 2015 when retail prices reached record-high levels because of tight cattle and beef supplies.
That’s especially important as restaurant sales have been weak all year. Various indicators show that traffic at U.S. restaurants remains mixed. Traffic at high-end restaurants and hamburger chains is robust but traffic is down at mid-tier chains. This is also mixed news for the beef industry. It depends on white tablecloth restaurants to buy its most expensive cuts and burger chains to buy its grinds. Beef sales as a proportion of total food sales at mid-tier restaurants vary considerably. But the industry depends on barbecue chains to buy briskets and ribs, and on sandwich chains to buy other cuts.
Food-service traffic in the second quarter remained tepid, according to information from NPD Group’s restaurant industry research. The latest quarterly negative trend represented the sixth consecutive quarter of weak traffic. The U.S. food-service industry has not experienced six quarters in a row of no traffic growth since the recession of 2008-09, says NPD.
The hardest hit segment was among the mid-scale/family dining restaurants, with mid-scale concepts seeing a four per cent decline in traffic for the quarter versus the same quarter last year, according to NPD’s CREST data. Likewise, casual concepts reported a three per cent drop in visits for the quarter compared to the previous year. Even quick service restaurants (QSRs) reported lackluster traffic that was flat overall. But this was offset by robust traffic increases across QSR burger and fast-casual restaurants, as quarterly visits spiked by 13 million and 77 million, respectively, for the quarter, says NPD.
Retailers, though, have featured beef aggressively since the start of August, in large part because wholesale beef prices fell below year-earlier levels. This showed up in August retail prices. USDA’s All Beef price for August averaged US$5.79 per pound, down three cents from July and the same as in August last year. But Choice beef prices averaged US$5.97 per pound, down 13 cents from July and down 0.8 per cent from last year.
This might not seem a big decline but it’s important when one considers that Choice beef accounts for 73-74 per cent of all the graded beef the U.S. industry produces. September and October average retail prices were likely to be lower again, as retailers continued to feature beef strongly because sharply lower wholesale prices had maximized their beef margins.
Strong Labor Day (September 4) retail beef sales, in fact, offered the industry a springboard for a modest recovery in cash live cattle prices which had been languishing in the US$105-106 per cwt range. The third week of September, just before I wrote this, saw a welcome rally to an average US$108.50 per cwt, basis USDA’s 5-area steer price. Retail beef sales will be even more important the rest of the year, as the U.S. industry is forecast to produce slightly more beef in the fourth quarter than last year.
If you want cheap meat; however, you should visit South Africa, which I did last month. One retailer had rump and Porterhouse steaks at C$5 per pound, fillet steaks at C$9.61 per pound, and Texan (flank) steaks at C$3.74 per pound. Lamb ribs, meanwhile, were priced at C$5 per pound. But just like in the U.S. and Canada, pork and chicken were even cheaper.