Rising tide raises all boats

Prime Cuts with Steve Kay

Strong demand has made beef the protein of choice for most American consumers.

The old saying that a rising tide raises all boats is especially apt in the U.S. beef industry right now. Stronger than expected domestic beef demand has raised cash live cattle prices above their levels of the week of Tyson Foods’ Holcomb, Kansas, fire on August 9. Live prices, based on USDA’s five-area region, averaged US$113.03 per cwt the last week of October. This was above the fire-week average of US$112.37 per cwt. Prices moved higher again the following week to hit US$114-$115 per cwt.

Feeder cattle prices have followed a similar trajectory and beef processors’ operating margins remain close to record weekly levels (which I noted in my column last May). All the indications are that live cattle prices will advance much of the rest of the year. Cash trade volumes and weekly slaughter levels coming into November appeared adequate to clear any developing backlog of cattle. Prices are likely to have a temporary post-Thanksgiving decline the first week of December but then advance again, say analysts. One concern is that carcass weights in late October soared well above last year’s levels. This was expected, as weights this time last year were impacted by severe winter weather.

Strong demand is highly evident at retail, where beef is the protein of choice for most Americans again. What’s more, they can increasingly afford to eat a high-quality steak, not just a pot roast or ground beef. That’s because of economics. Weekly earnings averaged US$969.39 during October, up from US$950.82 in January this year. This weekly income increase amounts to US$2.82 billion per week or US$151.92 billion if annualized, says analyst Andrew Gottschalk, HedgersEdge.com. The bottom line is: More money in people’s wallets is great for beef demand.

Another point about demand is that mandatory country-of-origin labelling (mCOOL) of fresh meat had no impact on consumer demand in its six years of existence. Yet that has not stopped U.S. Senator Jon Tester (D-Mon.) from introducing a Senate resolution to support reinstating mCOOL for beef and pork. The labelling issue was hotly debated for years before it eventually became law. Packers then faced significant added costs in segregating Canadian and Mexican cattle and products, and retailers faced significant labelling costs. Subsequent studies showed that mCOOL added no economic benefits to the meat industry or retailers and only costs. So Congress repealed the law in 2015, much to the relief of the beef industries in all three countries.

The latest assessment of mCOOL comes from Kansas State University’s Glynn Tonsor. The law likely did not have an impact on consumer demand for beef and pork products, he says. He and colleagues made an analysis of meat demand before, during and after USDA implemented mCOOL. If beef and pork products went through the grocery store, then they had to be labelled, he notes. With that came the cost of compliance, which went into a benefit/cost assessment and an attempt to quantify the benefit. So he tried to determine the impact of the law on the demand for meat and ultimately whether there was a positive benefit-cost ratio. There is no evidence of a positive demand development following implementation of the mCOOL law, he says.

Try telling this, however, to Senator Tester and the small number of cattle producers who are trying to bring mCOOL back to life. But as Tonsor says, he hopes that all policy decisions and those of industry leaders are based on information and research-based knowledge and less on emotion. I hope so as well.

About the author


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

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