dr. lee schultz - beef demand: clarifying concepts, summarizing status, and discussing future...
TRANSCRIPT
Department of Economics
Beef Demand: Clarifying Concepts,
Summarizing Status, and Discussing
Future Opportunities
Presentation at Iowa Cattle Industry ConventionDecember 9, 2014
Lee SchulzAssistant Professor
Extension Livestock Economist
Department of Economics
Iowa State University
(515) 294-3356
Department of Economics
Iowa’s Beef Cattle Industry Statistics
Department of Economics
What is Beef Demand?
• Critically Important, Yet Often Confused
– Demand strength
Reflects consumer valuation of beef
• underlies total $ available for the industry
» drives prices and profitability for all
Department of Economics
Example to Think About
• When shopping for steak and you observe a
buy-one-get-one free sale, do you ever buy
more than just one steak?
– The money in your wallet, the physical
characteristics of the steak, etc. did not change
– Yet, your “per capita consumption” of steak
increased if you bought 2 rather than 1 steak
o EXAMPLE OF DEMAND NOT CHANGING
» You bought more solely because of lower prices
Department of Economics
What is Beef Demand?
• Per Capita Consumption is NOT
Demand
– Per capita consumption
= (Domestic Production + Imports – Exports +
Cold Storage Adjustments ) / Population
– All quantity values; no prices in derivation
Department of Economics
What is Beef Demand?
• Beef Demand– Schedule of beef quantities consumers would
purchase over a range of prices
– Refers to the “demand curve” economist speak of
• Quantity of Beef Demanded– Quantity of beef consumers will purchase at a
given price
– Refers to a point on the demand curve
Department of Economics
Standard Supply-Demand Diagram
Department of Economics
What Does a Demand Index Tell Us?
• Demand index indicates how a demand curve
moves from one year to the next
– Measures shifts in demand over time relative to a base
year (i.e., 1980=100)
Provides no explanation for why demand may have
changed
» Only indicates that changes have occurred
Department of Economics
History, Status, and Future of Beef Demand
If demand in 1998 and 2010 would have been as strong
as in 1980 then real beef prices in those two years
would have been more than DOUBLE what actually
occurred
Department of Economics
History, Status, and Future of Beef Demand
• 2009 Demand Study, Cattlemen’s Beef Board – Income/expenditures (+ in most years)
– Health and Nutrition Atkins was +; Zinc, Iron, Protein +; otherwise -
– Convenience (-)
– FSIS recalls (-)
– Relative protein prices (-)
Department of Economics
17th consecutive yr/yr increase (since 2010:Q3); Q3.2014 = +10.3%
Actual Quantity & Price Changes:
1990: 67.8 lbs (per capita cons.); $2.01 (real All Fresh Price)
2013: 56.4 lbs (per capita cons.); $2.11 (real All Fresh Price)
Q3. 2014: Per Capita Consumption = -4.7% (yr/yr)
Real All Fresh Prices = +14.3% ($5.76/lb nominal price)
IF Real All Fresh Prices +3.7% = 0.0% Demand Change
History, Status, and Future of Beef Demand
Department of Economics
C-P-65A
06/27/14
Data Source: Bureau of Economic Analysis & USDA-ERS,
Compiled and Analysis by LMIC
Livestock Marketing Information Center
Given LMIC forecast 54.3 lbs/capita) in 2014:
No demand change IF 2014 All Fresh Retail Price
= $517.8/lb (+4.8% from 2013)
History, Status, and Future of Beef Demand
Department of Economics
History, Status, and Future of Beef Demand
• 2013 Beef Demand Study; Cattlemen’s Beef
Board; Checkoff Funded(http://www.beefboard.org/evaluation/130612demanddeterminantstudy.asp)
– T.C. Schroeder, G.T. Tonsor, and J. Mintert
• Goal: Identify demand drivers to focus effort on
• Evaluated 7 Broad Demand Determinants – Food Safety (E.coli, Salmonella, BSE, etc.)
– Product Quality (Freshness, Tenderness, Convenience, etc.)
– Price ($ per pound)
– Nutrition (Protein, Iron, Zinc, etc.)
– Health (Amount & type of Fat, Cholesterol, Sodium, etc.)
– Sustainability (Environment, Labor, Community dimensions)
– Social Aspects (Animal Welfare, Country of Origin, Organic, etc.)
Department of Economics
History, Status, and Future of Beef Demand
• 2013 Beef Demand Study; Cattlemen’s Beef
Board; Checkoff Funded(http://www.beefboard.org/evaluation/130612demanddeterminantstudy.asp)
– T.C. Schroeder, G.T. Tonsor, and J. Mintert
• Prioritizing Broad Demand Determinants – Most important to focus on:
Food Safety (impactful & feasible to be influenced)
Product Quality (impactful & feasible to be influenced)
Price (impactful yet less feasible to be influenced)
– Secondary importance to focus on: Nutrition (middle ranking in impact and feasibility)
Health (middle ranking in impact and feasibility)
– Less important to focus on: Sustainability (lower ranking on both impact and feasibility)
Social Aspects (lower ranking on both impact and feasibility)
Department of Economics
History, Status, and Future of Beef Demand
• Export Demand Critically Important Also
– In 2013, beef and beef variety meat exports amounted to 1,172,792
metric tons (2.6 billion pounds) worth $6.2 billion
– The top 10 exported beef cuts represent 85% of total U.S. beef
exports
– The U.S. beef export value equated to $244.96 per head of each
steer and heifer processed in 2013
– 13.2% of U.S. beef and variety meat production was exported in
2013
Source: USMEF
Department of Economics
• Over the next 10 years– Global meat consumption projected to grow 1.9%/year
– Beef exports projected to rise even quicker at 2.8%/year
• Increasing population & rising per capita incomes
• Changes in consumer preferences
• Improvements in product characteristics– Convenience, tenderness, food safety, health, nutrition, etc.
• Favorable opportunity to major beef exporters
• To capitalize on current and expected beef demand
strength, U.S. needs to increase overall beef production– Initiated by expanding breeding herds
History, Status, and Future of Beef Demand
Department of Economics Source: USDA/ERS
USDA Agricultural Projections to 2023(http://www.ers.usda.gov/publications/oce-usda-agricultural-projections/oce141.aspx)
Department of Economics
USDA Agricultural Projections to 2023(http://www.ers.usda.gov/publications/oce-usda-agricultural-projections/oce141.aspx)
• U.S. beef cow inventory:• 29.30 million in 2013
• 33.67 million in 2023 (+16.4% from 2014; +/- 2000 levels)
• U.S. domestic per capita red meat & poultry cons:• 221 lbs in 2004-07 (Beef=65.7 lbs; Pork=50.4 lbs; Poultry=103.8 lbs)
• 203 lbs in 2013 (Beef=56.5 lbs; Pork=46.6 lbs; Poultry=99.0 lbs)
• 215 lbs in 2023 (Beef=52.1 lbs; Pork=48.6 lbs; Poultry=113.5 lbs)
• U.S. beef exports:• 2.46 billion in 2013
• 3.41 billion lbs in 2023• 39% increase from 2013 levels; would be 13% of forecasted production
Department of Economics Source: USDA/ERS
USDA Agricultural Projections to 2023(http://www.ers.usda.gov/publications/oce-usda-agricultural-projections/oce141.aspx)
Department of Economics
USDA Agricultural Projections to 2023(http://www.ers.usda.gov/publications/oce-usda-agricultural-projections/oce141.aspx)
• “Developed World Changes”
• Declining global economic prevalence, populations, & per
capita meat consumption
• U.S./Canada (2.6% GDP/yr)• Different dependence on domestic consumption
• Japan (1.1% GDP/yr)• Major meat importer currently but will exporters care less going
forward?
• Europe (1.6% GDP/yr)• Will influential role as “food thought leader” persist?
Department of Economics
USDA Agricultural Projections to 2023(http://www.ers.usda.gov/publications/oce-usda-agricultural-projections/oce141.aspx)
• “Developing World Changes”
• Increasing global $, population, & per capita meat
consumption
• Africa & Middle East (4.7% GDP/yr)• Arguably the least understood growth market
• Latin America (3.9% GDP/yr)• Growing producer & consumer
• China (7.2% GDP/yr)• Canada has access but U.S. does not
• South Korea (3.1% GDP/yr – but 10x per capita inc. of China)• U.S. has access but Canada does not
Department of Economics
USDA’s Beef Long-Term Trade Projections (as of Feb 2014)
Data Source: USDA/ERS
Beef importers: thousand 2013 to 2023 Growth
metric tons, carcass weight 2012 2013 2014 … 2023 % Total
Japan 737 767 781 … 814 6% 47
South Korea 370 370 398 … 584 58% 214
Taiwan 116 135 135 … 150 11% 15
Philippines 121 117 115 … 136 16% 19
China 99 400 475 784 96% 384
Hong Kong 241 450 550 806 79% 356
Other Asia 301 346 379 … 635 84% 290
European Union 1/ 348 350 350 … 335 -4% -15
Russia 1,023 1,000 1,020 … 1,213 21% 213
Other Europe 58 64 64 … 70 9% 6
Egypt 250 215 230 … 315 46% 100
Other N. Africa & M. East 743 704 739 … 1,105 57% 401
Mexico 215 225 235 … 534 137% 309
Canada 301 320 315 … 326 2% 6
United States 1,007 1,024 1,027 … 1,324 29% 300
Major Importers 5,930 6,487 6,814 … 9,129 41% 2643
1/ Includes intra-EU trade.
Projections were completed in November 2014
Department of Economics Source: Policy Analysis Computing & Information Facility In Commerce
Exchange Rates
Department of Economics
USDA’s Beef Long-Term Trade Projections (as of Feb 2014)
Data Source: USDA/ERS
Beef exporters: thousand 2013 to 2023 Growth
metric tons, carcass weight 2012 2013 2014 … 2023 % Total
Australia 1,407 1,530 1,545 … 1,506 -2% -24
New Zealand 517 547 536 … 576 5% 29
India 1,411 1n650 1n750 … 2,561 55% 911
Other Asia 125 1201 120 … 209 73% 88
European Union 1/ 297 260 270 212 -18% -48
Argentina 164 180 220 336 86% 156
Brazil 1,524 1,800 1,940 … 2,554 42% 754
Canada 335 320 325 … 486.5 52% 167
United States 1,113 1,115 1,043 … 1,548 39% 433
Major exporters 6,893 7,522 7,749 … 9,988 33% 2466
1/ Includes intra-EU trade.
Projections were completed in November 2014
Department of Economics Source: Policy Analysis Computing & Information Facility In Commerce
Exchange Rates
Department of Economics Data Source: USDA/ERS
Top U.S. Beef Export Destinations
Department of Economics
Monthly U.S. Beef Exports and Boxed Beef Prices
Data Source: USDA/ERS, USDA/AMS
Department of Economics
Oct-14/Sep-14 Oct-14/Oct-13 Year-to-Date
Country Percent Percent 1,000 lbs Percent
Mexico -24.3% -18.5% 45,182 14.0%Japan -6.0% 15.4% -8,019 -1.4%Canada 8.1% -28.2% -93,699 -23.3%South Korea 25.8% 21.9% 43,740 21.5%Hong Kong 26.3% -1.4% 56,841 20.7%Taiwan 20.9% -2.1% 5,092 6.1%Vietnam 72.5% 118.5% -3,444 -34.2%Russia -107 -80.4%Egypt 218.2% -94.5% -45,172 -93.6%Netherlands -17.7% 1.8% 391 1.3%Philippines 5.4% 24.4% 4,965 25.5%
Other Countries 17.4% -7.0% 5,275 3.0%
Total 3.2% -3.4% 11,045 0.5%
U.S. Beef Exports, Jan-Oct 2014
Source: USDA/ERS
WASDE U.S.
Beef Exports (mil lbs)
2013: 2,590
2014: 2,599 (+0.3%)
2015: 2,525 (-2.8%)
Department of Economics
Thank You!More information available at:
Iowa Farm Outlook & News www.econ.iastate.edu/ifo/
Ag Decision Maker www.extension.iastate.edu/agdm/
ISU Estimated Livestock Returnswww.econ.iastate.edu/estimated-returns/
ISU Livestock Crush Marginswww.econ.iastate.edu/margins/
http://www.iowabeefcenter.org/