About 18 months ago, beef demand revealed growth for the first time in more than 20 years. The consensus was that the strong economy played a major role in the growth, but beef demand has continued its upswing, despite the U.S. economic slowdown.
"I'm not a big fan of the theory that the beef demand rise was almost strictly due to the strong economy," says Wayne Purcell, Virginia Tech University agricultural economist. "It's still a matter of consumers finding a product they like. Even if the economy slows down people will find other areas to save money, they won't stop eating." While it's certainly true that people will continue to eat, historically consumers have substituted less expensive meat cuts when the economy hits a snag. For the most part this has meant chicken and, to a lesser degree, pork would step in as a substitute for pricey beef cuts, says Steve Meyer, National Pork Board's director of economics.
So far, that hasn't been the case with the current economic slowdown, as beef demand for the first half of 2001 is 5 percent higher than for the same period in 2000. All signs point to this upward trend continuing.
Aside from the economy, other factors have helped boost beef demand. Expanding exports and developing new products that offer consumers greater convenience and ease of use have been beef's primary driving factors, according to Purcell.
"Exports probably will not be as robust as they've been in the past," he notes. "They're down a bit for the first six months of the year, largely due to a slow down in the Japanese market." Exports' role in beef's demand recovery began in the earl1990s. Last year, cattlemen exported nearly 10 percent of total U.S. beef production, which is a historical high, says Purcell.
Beef had been slow to climb aboard the consumer convenience bandwagon, but it's now on board in a big way. That product philosophy proved to be a huge factor in chicken's rise to prosperity. Today, beef is developing similar products, particularly in the pre-cooked product arena. Pork has long had a big share of the processed sector with things like lunch meats and hot dogs, so it has experienced a slightly different situation. Still, pork is looking to create more consumer-friendly products says Meyer.
Beef supply for the year and per capita consumption are expected to be down slightly. But as a function of the strong demand, that nearly equivalent amount of beef is expected to sell for 20 cents to 30 cents per pound more than in 2000. Retail beef prices have been averaging more than $3 per pound since early 2000 and have set six consecutive monthly highs, says Meyer.
You can expect retail beef prices to remain high for the next couple of years as the cattle cycle enters a production expansion phase, says Purcell. That means production will be down while cattlemen build up their herds – and retail beef prices will stay strong. Beef will lose some market share because per capita supplies will be down as the herd is being expanded.
Overall, strong beef demand and high prices are a positive thing for pork, though the correlation between the two is weak. " If demand for beef increases 10 percent it might increase pork demand only 1 percent to 2 percent," says Purcell, " as consumers look for price substitutes." So, while it's true that beef and pork compete for the same markets, there's limited potential for dramatic consumer shifting. Generally, what's good for one is good for the other.
Ultimately, developing new products, maintaining high-product-quality standards and improving exports within the pork complex will have more benefit than increases or decreases in competing meats.