A monthly column written exclusively for Beef Central by US market analyst, Steve Kay, publisher of US Cattle Buyers Weekly

WHEN one thinks of the key differences between beef and other proteins, flavour tops the list.

The pork industry’s most distinctive product in this regard, at least in the US, is bacon.

But beef’s unique flavour is what makes Americans continue to pay more for beef, despite its record high price in grocery stores.

Another key difference is the nature of production.

Cattle in North America spend the vast majority of their lives outside on grass. Only the last 30 percent is spent in a feedlot, where animals are still largely outside.

Beef cows spend their entire lives on grass. Most cattle in Australia also spend their entire lives outside.

In contrast, nearly all hogs and all chickens are raised and finished in confinement barns.

Beef production therefore is directly subject to the vagaries of weather while pork and chicken production is not. Exceptional drought in both Australia and the US in recent years has shown this and profoundly affected the cattle markets in both countries.

The US cattle herd shrank dramatically over the past several years largely due to drought. It in turn has shrunk the cattle feeding and beef processing sectors.

The first sector last year lost 103 feedlots of 1000 head of capacity or larger. The daily slaughter capacity of the industry’s largest processing plants (ranging from 6000 to 40 head per day capacity) peaked in November 2012 at 138,855 head per day in 74 plants. This has now dropped to 127,105 head per day in 66 plants, according to my data.

A recurring question is whether more US beef processing plants will close.

It’s possible. Companies are looking to ride-out this year in expectation of more cattle next year.

But they might have a long wait. USDA’s annual cattle inventory report showed larger than expected heifer retention for beef herd rebuilding. But those heifers’ offspring won’t start coming to market until late next year.

Beef processors’ immediate concerns are on both the supply and the demand side. Market-ready supplies of grainfed cattle remain in extremely tight hands even though analysts warn that a backlog might be developing.

Cattle feeders are starting to lose money so are even more determined to hold out for steady to higher money.

Meanwhile, the brutal winter in the central and eastern US put a dent in February beef sales, especially at foodservice.

Consumers have to eat, so they are making ‘stocking-up’ forays through the blizzards to the grocery store. But they are not eating out as normal and those food sales are lost forever.

Beef’s real issue: Competing proteins

But beef’s real issue is its wholesale and retail price compared to pork and chicken. Packers have pushed wholesale beef prices higher on sharply reduced production.

The concern is that any further run-up in these prices will make it even harder for retailers to feature beef in April and May. This might be a repeat of what occurred after prices increased the first three weeks of January.

In contrast, wholesale pork prices have plummeted to their lowest level in five years, due to larger than expected numbers of market hogs. Moreover, the price spread between the USDA Choice grade cutout and the pork cutout (a key wholesale price measurement) is record wide.

The story for beef at the retail level is good or bad news, depending on one’s point of view. Retail beef prices hit a new milestone in January. USDA’s All Fresh beef price averaged US$6 per pound (A$16.90/kg) for the first time.

The price was up US$0.95 or nearly 19pc from January last year.

One interpretation is that this was good news. Americans love beef, and they know its taste is unique and that it is packed with vital nutrients. So they are prepared to keep paying more for their favorite meat, and did so every month but two during the past year.

Apart from buying high-priced steaks for grilling and other special occasions, consumers have also paid more beef’s most eaten item, ground beef.

January’s retail price averaged US$4.24 per pound (A$11.95/kg), after exceeding $4 per pound for the first time last August. The January record was 22.2pc higher than a year ago and 86pc higher than in January 2010.

However, the comparison with retail pork and chicken prices is negative for beef. Retail pork prices in January averaged US$3.99 per pound and chicken prices averaged US$1.98. Pork prices were up 6.1pc from a year ago but were US$2.01 per pound cheaper than beef. Chicken was three times cheaper.

So beef remains over-priced in the US, relative to its competition.

This has impacted retail beef sales since last fall. Anecdotal evidence for months has suggested that consumers are making more meat-buying decisions based on price per pound.

This trend was confirmed in the tenth annual Power of Meat study published by the Food Marketing Institute and The North American Meat Institute.

It found that consumers in the grocery store continue to regard price per pound as a top factor in their meat purchases. So a significant number are seeking alternatives as the retail price of beef and pork increases.

Price increases for beef and pork caused shifts in buying behavior among 40pc of shoppers, with most looking for ways to save, says the study.

The record high beef prices have impacted the entire beef chain, from packer and cattle feeding margins, to feeder cattle prices.

So the start of the grilling season can’t come soon enough to give a spring boost to beef demand. Yet such a start might still be six weeks away.