When prices hit record highs, the demand usually falls. That’s the basic lesson that we’ve all learned back in our high school economics class. But, beef appears to be among the few exceptions to that rule, having defied expectations.
Retail grocery prices for beef skyrocketed in recent years and show no signs of descending any time soon. But surprisingly, demand has not softened – it’s actually edged upward. According to USDA data, the all-fresh retail beef demand index in the second quarter climbed to its highest level in at least 25 years.
The remarkably steady allure of beef, even at current prices, is likely a result of several factors currently shaping consumer food buying behaviors, according to a new research brief from CoBank’s Knowledge Exchange. Key among those factors is the heightened interest in dietary protein, changing health perceptions surrounding beef, and the availability of restaurant-quality beef at retail grocery stores.
“Twelve months ago, the question was whether beef demand would hold up at higher prices, but today most analysts are fairly certain that beef value risk is to the upside,” said Brian Earnest, lead animal protein economist with CoBank. “Retail per capita beef consumption is headed for 60 pounds this year. U.S. consumers can’t seem to get enough protein these days, and among animal proteins beef remains king.”
According to the most recent inflation data released by the U.S. Bureau of Labor Statistics, core inflation was up 2.9% year-over-year. Beef price increases towered in comparison. The all-fresh retail beef prices surged by 9% for the year, hitting an astonishing $8.90 per pound. Even at those levels, prices have been unable to tame unyielding consumer interest in beef.
Improvements in beef quality and the increased availability of premium grade cuts at retail have played a big role in driving demand. The U.S. beef industry is producing a much higher quality product today than it did 30 years ago. Recognizing quality issues in the 1980s, cattle producers began selectively improving herd genetics to produce beef with higher fat marbling and better taste for improved customer experience. Those efforts have paid off as 95% of U.S. beef production is now grading Choice or higher.
Earnest said access to high-quality beef has never been better and American consumers have developed a taste for it. “The COVID-19 pandemic led us to a place where ‘leveling up’ through access to luxury goods is prioritized over luxury services. And beef, specifically high-quality beef, is a luxury good that can be accessed for at-home consumption at a fraction of the cost at fine dining establishments.”
Consumer perceptions surrounding the health aspects of eating beef have also improved in recent years. Fitness-conscious consumers who laud protein content for muscle production often favor beef. The advent of GLP-1 medications for weight loss have also sparked more widespread consumer interest in increasing the amount of protein in their diets.
Tight cattle supplies keep beef prices elevated
The USDA mid-year cattle inventory report released on July 25 revealed the biannual cattle inventory was the lowest mid-year count on record at 94.2 million head – a 75-year low. Analysts are mixed on whether the beef herd is still in contraction or beginning to rebuild. But most observers suggest the nation’s cattle supply will remain strained through at least 2026, and likely through 2027. That means retail beef prices will remain elevated for the foreseeable future. While larger macroeconomic shifts could influence purchasing behavior in the future, so far consumers have shown little appetite for sacrificing beef.
Read the research brief, U.S. Beef Attracts More Customers Than It Can Handle.
Source: C0Bank
