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PRIME CUTS – for Nov. 14, 2011

Americans still love their beef. But they re not eating anywhere near as much as their parents. This seems a contradiction but the dramatic decline in per-capita beef consumption over the last 35 years has little to do with preference. It s all about available supplies.

These supplies, which we also call disappearance, are calculated by adding together domestic production and imports, subtracting exports, and then dividing the total by the latest population figure. Americans in 1976 consumed a hearty 94.3 pounds of beef per person. Production was a record that year, exports were minimal and the U.S. population was 218 million people.

Consumption has been on a steady decline since then but the trend has accelerated since 2007 as exports continue to increase and, more latterly, imports have fallen sharply. Also, the U.S. population has grown to nearly 309 million. USDA s latest forecast is for per-capita supplies in 2012 year to drop to 54.3 pounds per person. This is down a startling 3.4 pounds from this year s forecasted 57.7 pounds and down 10.7 pounds from 2007. The supply might well be the lowest since USDA began calculating it.

Such a decline in per-capita supplies has enormous implications for all in the U.S. beef chain and consumers. End users, whether at retail or food service, will have to compete more for tighter supplies. They will have to pay more for all types of beef and try to pass on the added costs.

Wholesale beef prices are already much higher than at this time last year. USDA s weekly composite cutout the week ended October 7 was $179.10 per cwt. This was 19.2 per cent higher than the same week last year. A similar increase by this time next year would put the cutout at $213.49. Retailers and restaurateurs this year have attempted to minimize beef price increases to consumers. But retail prices continue to rise. USDA s All Beef price for August was $4.49 per pound, up four cents from July and up 47 cents or 11.7 per cent from August 2010.

A similar increase by August next year would put the average price above $5. Such prices could meet resistance from consumers unless the economy has improved significantly by then. Prices might increase sharply well before then. The All Beef retail price would have to advance to $4.88 to fully reflect the price of fed cattle in mid-October ($119 per cwt).

The main reason for USDA s lower per-capita forecast is because of lower production next year. But it also cut 2012 imports and increased its 2012 export forecast. USDA says strong demand in a number of countries is expected to support continued growth in U.S. exports.

Its statement came the same day that a rare bipartisan vote by the U.S. Congress passed three free trade agreements, with South Korea, Panama and Colombia. The FTAs, notably that with Korea, could add more than $2 billion to the value of U.S. red meat exports over the next 15 years. Estimates vary from $1 billion to $1.8 billion per year as to what the added annual beef trade to Korea might be once the FTA is fully implemented.

The increase, whatever it amounts to, presents a conundrum for the U.S. beef industry. While everyone looks forward to a potential increase in exports to Korea, and other markets, the result will be even less beef supplies at higher prices for Americans. One solution, albeit a long-term one, is that the FTAs will provide an incentive for cow-calf producers to expand their herds. But until it rains, and rains and rains, in Texas and surrounding states, any expansion is out of the question.

CattleBuyersWeeklycoverstheNorthAmericanmeat andlivestockindustry.Forsubscriptioninformation, contactSteveKayatP.O.Box2533,Petaluma, CA94953,orat707-765-1725,orgoto www.cattlebuyersweekly.com.

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ANorthAmericanviewofthemeatindustry.SteveKayispublisherandeditorofCattleBuyersWeekly

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While everyone looks forward to a potential increase in exports to Korea, and other markets, the result will be even less beef supplies at higher prices for Americans

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A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.

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