U.S. imports of Canadian beef in September 2022 were up 4.3 per cent from September 2021 and up 17 per cent from the five-year average for September. September imports were the largest monthly volumes since October 2021. Import values in September 2022 were down 6.9 per cent from September 2021, when there was unusually strong demand for middle meats that supported import prices. Although lower year-over-year, import values in September 2022 were up 45.1 per cent from the five-year average.

In October 2022, beef inventories in cold storage declined 3.1 per cent from September 2022 and deviated from the five-year trend of increasing October inventories. The drawdown occurred despite steady cutout values and higher slaughter, a sign of continued, steady demand for beef. Strong domestic slaughter — including higher slaughter volumes of mature cattle due to drought — has pressured import volumes.

Ribeye and ground beef hold steady at retail
The U.S. all-fresh beef price declined one per cent from September to October 2022 to US$7.25/lb (US$15.98/kg). The move marks the largest month-over-month price decline since November to December 2021 (-2.3 per cent) and a downward deviation from an otherwise steady year for all-fresh beef prices. In October 2022, the all-fresh retail beef price was 4.0 per cent lower than in October 2021 and the lowest since August 2021, but remained 17.3 per cent higher than the five-year average for October.

The Kansas State Meat Demand Monitor showed that consumers were willing to pay higher retail prices for all proteins from September to October 2022. Retail remains the lower-cost option for consumers under economic pressure when compared to foodservice channels. Market share for ribeye and ground beef remained steady month-over-month whereas a one per cent increase in market share was reported for pork chops and chicken breasts. The largest increase in what consumers were willing to pay more for was rice and beans. The monitor also reported changes in consumer behaviour at retail, with 30 per cent of consumers reducing the number of meat items they bought, 24 per cent purchasing smaller packages and 16 per cent buying different cuts.

Foodservice customers unwilling to pay more
Conversely, at foodservice, the Kansas State Meat Demand Monitor reported a decline in willingness to pay for all proteins from September to October 2022. The report showed a one per cent month-over-month decline in market share for both ribeye and chicken breast at foodservice. Beef hamburger market share at food service remained steady month-over-month, with a one per cent reported increase in market share for plant-based patties and shrimp. Lunch was the main outlet for food service sales among those surveyed in the monitor, with just 49 per cent of prior-day lunchtime meals consumed at home, versus 75 per cent at breakfast and 65 per cent at dinner. Quick-service outlets maintain the largest share of breakfast, lunch and dinner.

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January through February 2022, imports of Canadian flank/plate and rib increased the most, up 24 per cent in volume year-over-year. Brisket volumes were up 21 per cent, with loin (+20 per cent) and offal (+10 per cent) volume up as well.

Chuck and other category volumes were up eight per cent each. January through February import values also surged, with brisket value nearly doubling year-over-year (+94 per cent). Flank/plate values were up 74 per cent, with loin (+57 per cent), rib (+47 per cent), hip (+35 per cent), chuck (+33 per cent) and offal (+15 per cent) values up as well.

Other categories were up 43 per cent in value. Canadian Prime and AAA production as a percent of all A grades were at 80 per cent in the first quarter of 2022, up from 75 per cent in the first quarter of 2021 and 70 per cent for the five-year average for the first quarter, supporting availability of high-quality beef for grilling season.

Total U.S. beef imports in February 2022 were up 40 per cent from February 2021. Volumes increased from New Zealand (+eight per cent), Canada (+13 per cent), Mexico (+36 per cent), Australia (+44 per cent), Argentina (+92 per cent) and Brazil (+336 per cent), with volumes down from Uruguay (-39 per cent).

Value, Volume, Price and Market Share % of U.S. Beef Imports from Major Suppliers (February 2022, YTD)

In March, Brazil filled its U.S. import quota shared with Ireland Nicaragua, Costa Rica, Chile and Japan. These exporters will now face a 26.4 per cent duty which is likely to impact Japanese Wagyu steak prices most.

Beef ratios improve, support retail demand

Relative price ratios between beef and pork and beef and chicken moved lower from February to March 2022 even as the all-fresh retail beef price increased 1.2 per cent to US$7.36/lb (US$16.23/ kg). The beef-to-pork ratio at 1.78 in March 2022 was down slightly from February but steady with the five-year trend. The beef-to-chicken ratio at 3.18 in March 2022 was down slightly from February and slightly below the five-year trend.

Lower ratios favour beef consumption. Higher prices for all proteins are supported by strong demand and inflation. Buying less meat and/or substituting between species and cuts are typical reactions to high prices; these are no doubt solutions for some U.S. consumers.

However, supply chain disruptions are affecting all grocery products and are limiting consumers’ options everywhere. Top-of-mind strategies for consumer cost savings are seeking promotions, buying hand-to-mouth and/or buying in bulk. These behaviours may support further beef price volatility this year, leading to exaggerated seasonal price peaks and valleys.

Restaurant owners anticipate continued shortages

Restaurant performance improved 0.5 per cent from January to 103.8 in February, according to the composite Restaurant Performance Index. The index increased on higher same-store sales, traffic and expenditures but future expectations among restaurant operators declined for the second month in a row.

The 2022 State of the Restaurant Industry Report advised that most restaurant owners anticipate it will be another year before business conditions normalize. Nearly all (96 per cent) experienced supply challenges in 2021 and these are likely to persist throughout 2022. Eighty per cent of operators changed menus because of shortages.

The pandemic has transformed the foodservice sector in other ways as well. Eighty per cent of operators say technology use is providing a competitive advantage. The use of technology in take-out and delivery services is essential (according to 25 per cent of consumers and 72 per cent of millennials). As a result, one-quarter of restaurants surveyed have plans to expand these services.

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Despite the spectre of inflation, the outlook for Canadian beef is relatively rosy in the U.S. 

Canadian beef exports to the U.S. were up 20 per cent in volume and 66 per cent in value as of November 2021, compared to the five-year average. Imports of Canadian beef into the U.S. increased three per cent in volume and 30 per cent in value in Nov. 2021 compared to Nov. 2020. While year-over-year beef import volume increases in August, September, and October 2021 (which were up between 18 and 20 per cent) dwarfed November’s three per cent gain, November 2021 imports were still historically large. 

Inflation looms large in the U.S. with the Consumer Price Index (CPI) up seven per cent in 2021 from 2020. Beef and veal items in the CPI were up between nine and 10 per cent in 2021. A further two to three per cent price increase is forecast for beef and veal items in 2022. Twenty-one states raised their minimum wage this January, including states with historically high beef steak demand (e.g., Washington, California, Minnesota, Illinois, and New York), providing support for sustained higher prices. As U.S. beef production is forecast to decrease by three per cent in 2022, this may leave room in the U.S. market for high-quality cuts of Canadian beef. 

In November 2021, U.S. beef imports increased 27 per cent from November 2020. Imports decreased from Australia (-14 per cent), but increased from Canada (up three per cent), Nicaragua (+18 per cent), Uruguay (+24 per cent), New Zealand (+33 per cent), Mexico (+75 per cent), Brazil (+84 per cent), and Argentina (+960 per cent). Imports may have continued to surge into January of 2022 as slaughter plants navigated the logistics of absenteeism from rising Omicron cases. A back-up of fed cattle and a strong U.S. dollar compared to the U.S. beef price is supportive of higher imports. Historically large beef cow slaughter from drought conditions in the U.S. will continue to support trim supplies in 2022.

Resistance grows to higher beef prices 

U.S. retail beef demand remains strong, but the question is, for who? According to the Kansas State Meat Demand Monitor, the U.S. consumer’s willingness to pay for rib eyes at retail continued its upward climb in December 2021 to US$18.22/lb, seasonally slipping but steadily increasing to be up 13.2 per cent from December 2020.  

Demand for rib eye steak is strongest among U.S. males, under 55 years, with household incomes over US$100,000, who also ate beef at a meal the previous day. For everyone else, there is evidence of resistance to higher beef prices emerging. From November to December 2021, the all-fresh and U.S. Choice retail beef prices declined two per cent, for the second consecutive month of lower retail prices. March 2022 features have reportedly been put on hold. It is likely retail demand is shifting to lower-priced cuts of beef for the average U.S. consumer. Concerning ground beef, U.S. consumers were still willing to pay US$9.28/lb at retail in December 2021, 25.6 per cent higher than December 2020. 

Americans stick close to home for meals 

Lunch and dinner are the most common meals for beef consumption and these meals are still primarily being consumed at home. Kansas State research suggests about half of Americans consumed lunch at home in December, with just one-third reported having eaten lunch away from home (the remainder having skipped meals). At dinner, two-thirds of Americans ate at home in December 2021, versus 12 per cent who ate out. For those having dinner away from home, they were predominantly at casual dining or quick service locations.  

The market share of beef consumed at restaurants decreased from 41 per cent in November 2021 to 39 per cent in December 2021, with pork increasing from 15 to 16 per cent, but beef hamburger remains the most common selection at food service. The U.S. consumer’s willingness to pay for both rib eyes and hamburgers at restaurants was about $3 higher per meal in December 2021 compared to December 2020. 

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Canadians love to travel and spend their foodservice dollars abroad. This summer marks the second consecutive summer that these dollars have remained locked into local economies. Local travel and return to work appear to have supported the limited-service (e.g. fast-food) sector to near steady sales with pre-pandemic levels. The remainder of the foodservice sector is still struggling though. Restaurants have been hit hard again this year with restrictions and customer fears about the perceived risk of going out.  

Total foodservice sales in June were up 32 per cent from June 2020, but down 16 per cent from June 2019. Subtract drinking-only establishments, and foodservice sales were up 25 per cent from June 2020 but down 20 per cent from June 2019. Special service (e.g. the catering and stadium business) was up 57 per cent from June 2020, but down 45 per cent from June 2019.  

The story is similar for full service (e.g. dine-in restaurants), whose sales were up 46 per cent from June 2020, but down 25 per cent from June 2019. These numbers are disappointing considering the investments the full-service sector is thought to have made to refresh business models and provide more dine-out options. Only limited-service establishments have come close to sales comparable to 2019. Limited-service sales in June 2021 were up 22 per cent from June 2020, and down just one per cent from June 2019.  

As the Canada Emergency Wage Subsidy is set to expire October 23, 2021, and patio season has wound down, restaurant capacity is likely to be negatively impacted*. Full-service restaurants may be forced to borrow more or invest and focus more on dine-out and online orders to stay afloat during the colder months, if they haven’t done so already. This may lead to fundamental and semi-permanent shifts in employment, cutout values and the way families gather and celebrate occasions.  

In the near term, there won’t be as many jobs in the sector. Additionally, the cutout may be affected because cuts demanded by the sector may support more dine-out friendly offerings. Both round and blade roast retail pricing increased counter-seasonally this summer. This could be because there was more competition from foodservice to support wholesale values for these products.  

Full-service will have to adjust to changing and entrenching consumer behaviours. For example, a University of Guelph study examined whether Canadians’ eating habits had changed since staying home. It showed that 60 per cent reported making more meals from scratch, 70 per cent spent more time cooking, 55 per cent ate more meals with children and 50 per cent involved their children in meal preparation more often. These are wholesome activities that families may not tire of for quite some time.  

The transitory food inflation in the economy is also putting pressure on families and is unsupportive to foodservice. Many more families will be doing more cooking and will become more disciplined to combat this inflation.  

This does not bode well for the foodservice sector. It is estimated that pre-pandemic ratios of retail to foodservice buying were 62:38, and that the ratio dropped as low at 91:9 during the pandemic and is currently around 74:26. 

*Originally noted that the Canadian Emergency Wage Subsidy expired September 25, 2021. The subsidy was recently extended to October 23, so the story was updated accordingly.

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Food inflation supports retail sales  

Supermarket and other grocery sales have remained higher than 2019 levels for the last 18 months. Grocers were still realizing year-over-year sales increases in January and February 2021. More recently, that pace has slowed. In the second quarter of 2021, supermarket and grocery sales were down on average 1.6 per cent from 2020, but still up on average 12.2 per cent over 2019 levels.

Food inflation is supporting retail sales. Canadian retail food forecasts predict a three to five per cent increase in the overall food price for 2021. The inflation will be felt differently across the country. Alberta, Manitoba, Ontario and Saskatchewan may see below-average food price increases. British Columbia and the Maritimes, however, may see above-average food price increases. The most significant increases were predicted for meat at 4.5 to 6.5 per cent, bakery at 3.5 to 5.5 per cent, and vegetables at 4.5 to 6.5 per cent. These goods are susceptible to the impacts from La Nina drought experienced this year, and the increasing national dependence on imported products that are at the mercy of rising fuel and transportation costs.  

The capital flight of the food manufacturing sector from Canada is also a factor in rising food prices. Both family-owned operations and large multinationals are having trouble justifying their businesses here, even when they use Canadian inputs in their products. Lack of investment in the Canadian food processing sector means that retailers increasingly rely on imports, contributing to higher prices at grocery. Transport costs, climate change mitigation costs and packaging levies make goods more expensive. Large companies can pass these costs to suppliers, and they trickle down through the supply chain to producers. Smaller companies must pass on the increased business costs to the consumer.  

Monthly year-over-year food price comparisons are misleading this year given the volatility of the current economic environment. In August 2021, the Food Price Index (FPI) was up 2.7 per cent from August 2020. January through August 2021, the FPI was up just 1.4 per cent from the same period in 2020. It’s key here to note that the FPI has consistently outpaced the Canadian Price Index (CPI) for the last 20 years. That means that food prices at grocery are not a reliable indicator of the extent of overall national inflation. The sky is not yet falling, just reflecting the transitory effects of Canada’s choppy economic waters.  

Meat prices rise 

The retail beef price started its seasonal decline, down one per cent from July 2021 to CDN$21.85/kg in August 2021. The retail price of the prime rib roast, which seasonally declined five per cent from July to August 2021, was the primary driver of that decline. Retail beef is still more expensive than usual, however, with prices up eight per cent compared to August 2020 and up 14 per cent compared to August 2019. Rising prices are being driven by higher demand at retail, especially for higher-priced middle meats.  

In August 2021, all major cuts were higher in price compared to August 2020, except for ground beef. The largest increase was for sirloin steak (13 per cent), followed by boneless blade roast (11 per cent), prime rib roast (nine per cent), stewing beef (five per cent), and round steak (five per cent). Both blade roasts and round roasts found counter-seasonal support throughout the summer. Ground beef, while up two per cent from July to August 2021, was down one per cent in August 2021 compared to August 2020.  

Year over year, prices for meat products in the CPI rose at the fastest pace in August (+6.9 per cent) since June 2020 (+8.1 per cent). Notably, this was driven by the price of poultry and pork. Producers are facing higher input costs, supply chain issues and growing demand from restaurants for shareable products such as wings that struggled for demand last summer.  

Rising retail chicken and pork prices are becoming more favourable to beef, although beef is not yet on the pricing level as it was pre-pandemic. In August 2021, the retail chicken price was up seven per cent from August 2020. January through August 2021, the relative price ratio of beef to chicken averaged 2.72, compared to 2.82 in the same period in 2020. In 2019, that average was closer to 2.56.   

January through August 2021, the relative price ratio of beef to pork was an average 1.53, compared to 1.56 in the same period in 2020. In 2019, that average was closer to 1.45. The retail pork price was up nine per cent in August 2021 from a year earlier, hitting the second-highest price on record since 1979. Only November 2015 saw higher pork prices in the last 42 years.   

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The comparison to April 2020 is big, up 62 per cent. Big volumes this spring are comparable to Canadian beef import volumes during the spring months in 2020, 2019 and 2010 (USDA; carcass weight basis). The beef demand pull in the U.S. comes from both American consumers and from consumers in South Korea, China and Southeast Asia, who are drawing beef exports out of the U.S. 

From January through April 2021, Canadian beef imports were up three per cent in volume from 2019, reaching the highest year-to-date volume since 2007.  

While the biggest April 2021 export volumes went to South Korea (67 million pounds; 30,499 tonnes), big volumes are going to China as well. Over the last 20 years, the U.S. has exported an average of 15 million pounds of beef to China annually. January to April 2021, the U.S. exported nearly 10 times that much with 139 million pounds going to China (USDA; carcass weight basis).

Retail prices rise

Grocers seem comfortable that the U.S. consumer is willing to pay more for beef this spring compared to other proteins. The all-fresh retail beef price increased 3.9 per cent from April to May to US$6.73/lb (CDN$14.85/kg). This is the second-highest price on record since 2008, down just 4.4 per cent from the May 2020 record price. 

The price in May 2021 was 14 per cent higher than May 2019, representing a significant increase from pre-pandemic pricing. The beef price increases compared to chicken and pork are large. The May 2021 retail chicken price was up 8.3 per cent from May 2019, but the retail pork price was steady with May 2019 (0.2 per cent). 

Food service drives wholesale rally

The return of foodservice in the U.S. is helping to drive the wholesale beef rally this spring. Compared with March 2019, March 2021 major chain restaurant transactions were down six per cent and quick service restaurant chain transactions were down five per cent and very close to pre-pandemic levels. In the U.S., transactions have steadily improved month-over-month since restaurants were shut and then reopened last year. 

The U.S. Choice cut-out was US$317.59/cwt (CDN$384.97/cwt) in May 2021, with the Select cut-out at US$296.31/cwt (CDN$359.19/cwt). Both Choice (-24.4 per cent) and Select (-25.8 per cent) values were 25 per cent lower than May 2020. Excluding May 2020, the Choice cut-out was at its highest price in five years and the Select cut-out was at its highest value on record (since 2004). 

There is competition in the market that is driving up the cut-out price with the Choice rib primal being in the driver’s seat. The Choice rib was the only primal to rally higher this May versus last. The Choice rib primal moved up to US$545.83/cwt (CDN$661.77/ cwt) as of June 11, 2021 to a new record high (since 2004). There were sincere efforts amongst the remaining primals to meet last year’s price heights, but values were headed down in the second week of June before that could happen. The Choice brisket made a welcome return this April when it finally pushed past 2019 values. 

At US$296.53/cwt (CDN$359.52/cwt) in May 2021, it seems the brisket had peaked at the second-highest price on record. 

Canada and Mexico backfill U.S. market

Total U.S. beef imports in April 2021 were up 1.5 per cent from April 2020. Imports from Australia were down 37 per cent from April 2020 and down 43 per cent (12,246 tonnes) from the five-year average for April. 

Canada and Brazil have stepped in to offset the decline. Beef imports in April 2021 were up from Canada (+62 per cent) and Brazil (+130 per cent), but down from New Zealand (-26 per cent), Argentina (-23 per cent) and Mexico (-3.0 per cent), compared with April 2020. The protein pulls from African swine fever and the U.S. Phase One Trade Deal with China are gathering strength over North American beef trade flows. Total U.S. beef exports in April 2021 were up 22 per cent from April 2020, with Canada and Mexico adding product to backfill the U.S. market.

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Restaurants are open in all states in the U.S. As of March 31, 12 states had removed all dining restrictions, including Texas, Tennesse, South Dakota, Oklahoma, South Carolina, Nebraska, Montana, Massachusetts, Mississippi, Iowa, Florida and Arkansas.

Restaurant buys will soon weigh into the wholesale price for Choice cuts. Choice primal prices already have a significant edge over last year. Choice rib was up 11 per cent year-to-date as of March 26, with Choice chuck up eight per cent and Choice loin up nine per cent.

Choice round has been steady in 2020 so far, but Choice brisket was down 10 per cent. The price trends are the same but subdued for Select primals.

There is still a risk of a third wave affecting the U.S. wholesale or foodservice sectors, but the U.S. is leading vaccinations globally. At the end of March 2021, food processing employees became eligible for COVID-19 vaccinations in 26 states.

Retail beef demand strong as summer approaches

Fresh beef imports are headed to retail where beef leads the meat department in volume and value. In February 2021, sales of fresh beef were up 17.2 per cent in value and 11.2 per cent in volume from last year. The all-fresh retail price of beef notched up in February 2021 for the third straight month. At CDN$13.90/kg in February, the all-fresh price was up 0.2 per cent from January 2021 and 6.2 per cent from February 2020. Warmer grilling weather is expected to keep the coals burning on the retail beef market.

Ground beef sales in February 2021 were up 9.6 per cent in value leading grind sales at retail (in absolute dollars). Ground beef’s market share in February 2021 was 83.7 per cent. Market share for ground turkey was 11.8 per cent, followed by ground chicken at 1.8 per cent and ground pork at 1.4 per cent. The market share of plant-based grind products was one per cent in February 2021, with continued aggressive growth (+85.2 per cent) in value compared to last February.

Canadian beef demand up slightly

U.S. demand for Canadian beef remains strong in 2021. Canadian exports to the U.S. totalled 24,875 tonnes in January 2021, up 5.5 per cent in volume and 7.9 per cent in value from January 2020. The average price was CDN$7.50/kg in January 2021, up 2.3 per cent from last January (Statistics Canada).

Product mix trends have shifted. In January 2021, fresh product increased, totalling 21,505 tonnes and up 7.4 per cent (+1,480 tonnes) compared to January 2020. Fresh product market share was 86.5 per cent in January 2021, compared to 84.9 per cent in January 2020. Imported loin products were of interest, with fresh bone-in loin at 42.5 tonnes, up 35.8 tonnes or 536 per cent from January 2020. Imports of frozen boneless loins totalled 45 tonnes, down 35.4 tonnes, or 44 per cent from last January. Total frozen import volumes were up slightly in January 2021, and offals and processed beef were down.

In January 2021, the USDA reported that U.S. beef imports from Australia and Mexico were down 47 per cent and 18 per cent respectively from January 2020. Imports were up from New Zealand (+46 per cent), Brazil (+112 per cent), and Uruguay (+ 84 per cent).

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