BEEF PRICE AFFORDABILITY NOT AS BAD AS PRICES SUGGEST
By Don Close and Dave Weaber Terrain
In last month ’ s article , we explored the resilience of consumers in their monthly beef spending and the amazing level of beef demand that has persisted for the past 12 months . This month , we ’ ll dive into beef affordability relative to other goods consumers buy to further answer the question of how long consumers will be willing to purchase what seems like high-priced beef .
As a reminder , in May 2024 , fresh beef real-per-capitaspending was 4.8 % above year-earlier levels while pork and chicken spending levels were both down more than 3 %. Similar trends existed in the year-to-date totals through May , with beef real per capita spending rising 3.75 % versus a year earlier and pork and chicken year-to-date spending declining 2.6 % and 2 %, respectively . Fresh Beef Prices Not Out of Line
Relative to price changes for other goods in the marketplace , recent fresh beef prices don ’ t appear to be out of line , as measured by the Consumer Price Index ( CPI ). In fact , compared with recent history , excluding the huge market disruptions of 2020 and 2021 due to the COVID-19 pandemic , the USDA ’ s all fresh retail beef price for June fell in line with datapoints for 2018 , 2019 , 2022 and 2023 ( see Chart 1 ). We looked back at June monthly data from 2004 to 2024 ( excluding 2020 and 2021 ) and found that changes in the monthly CPI could explain about 93.3 % of the changes in all fresh beef prices .
One way to interpret such data is to say that all fresh beef prices are neither over- nor underpriced relative to other consumer goods . That is , consumers aren ’ t likely to favor other meat over beef just based on relative prices . Prices at retail appear to be at or near historical equilibrium .
Similar analysis between the all fresh beef price and the combined value of the USDA comprehensive boxed beef cutout and the drop credit ( proxy for wholesale beef and offal ) shows the June 2024 wholesale beef product value was nearly $ 20 / cwt above historical expectations , suggesting that the retail grocery share of value has declined by about 5 %. Flipped around , that is 5 % more relative value flowing through the system toward cattle producers .
This could be caused by retail grocery companies promoting beef with more aggressive feature prices and using marketing funds or margin from other items in the store to buy down beef prices for consumers . These companies appear to be strategically funding price reductions in order to grow not just beef-item sales revenue but also top-line store sales revenue while covering budgeted margin requirements in other areas of the store .
Recent shopper card data analysis by Circana shows the total value for shopping carts containing an Angus-labeled item is 11 % greater than when any other beef item is in the cart . Many retail grocery companies are using beef as a point of differentiation in their offering , which is good news for beef .
Consumers Have Final Say on Prices
Without a doubt , retail beef prices are high . 2024 holds the record for the highest average all fresh retail beef price for the first half of any year . But clearly , it is a price consumers are willing to pay for the largest volume of high-quality , grain-fed beef in the world .
High retail prices in and of themselves aren ’ t necessarily a bad thing ; we would contend that they are a good thing . This is especially true considering the system is moving fewer head and fewer pounds through the supply chain and may produce even less product during the next several years as the breeding herd expansion gets underway .
The money in our business comes from one place : consumers who desire our product . If prices begin to slip with steady or smaller per capita supplies , that means demand has begun to wane and resulting price and margin compression won ’ t be far behind .
Terrain is a team of economists who provide expert analysis to the customers of American AgCredit , Farm Credit Services of America and Frontier Farm Credit . Learn more at Terrainag . com .
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