A monthly view of the North American beef industry with Steve Kay, Cattle Buyers Weekly, Petaluma, California

Beef faces an uphill battle in the US to capture consumers’ dollars this year.

Shrinking US cattle numbers and overall beef supplies will force retail and food service beef prices higher again in 2013 and keep them at record levels. Meanwhile, beef will face larger pork supplies than expected.

The key question is how high beef prices can go without forcing consumers away from beef.

Forecasts that overall retail prices will be 5 percent higher this year come on top of a 5.6pc increase in 2012. The big issue is whether the economy will improve enough to put more discretionary income in Americans’ pockets, which would allow them to afford higher-priced beef.

The US has for now avoided the so-called fiscal cliff. But major financial issues remain and will likely dominate the economy this year. Besides, the last-second deal allowed for payroll taxes to increase, which will reduce consumer discretionary income, say analysts.

Grocery chains for years have used aggressive beef features ('specials' in Australian retailing) to attract shoppers into their stores.

But the 2008-2009 recession forced shoppers to “cherry-pick” the features and trade down in their beef purchases, notably to ground beef.

The economy is now out of recession but these trends have continued because retail beef prices have been record high. Chains are seeing more beef sold only on feature. One large chain tells me it used to sell about half its beef at some kind of feature price. The amount is now 75pc.

Yet today’s retail feature prices are the same as everyday prices of only two or three years ago.

For example, the regular price of 70/30 fresh ground (minced) beef used to be around US$1.99 per lb (A$4.30/kg) , with feature prices sometimes well below that. Now it is rare to see this ground beef featured even at that price.

Supply forecasts indicate that US beef production is likely to decline 3.5pc or more from 2012 while pork production might be down 1.7pc.

However, USDA’s latest Hogs and Pigs report showed the pork industry still has a large pig crop despite high feed costs, and that hog numbers are larger than analysts expected. In fact, productivity gains might mean about the same number of hogs slaughtered and pork produced this year as last.

Americans will still eat a lot more beef than pork this year because the pork industry exports far more of its production than does the beef industry. But pork remains historically cheap at retail relative to beef and this differential is likely to widen in 2013.

Retailers will also have to find even more inventive ways to deal with beef cuts that are the biggest and heaviest in history. Such weights can be attributed to several factors:

• productivity gains from ranch to the feedlot
• the widespread use of two beta-agonists, which add up to 16kg of liveweight per animal, and 
• feedlots being able to feed to heavier weights without being penalised by packers.

It’s questionable if beef carcases will get much heavier this year, and some analysts have them flat with last year. But retailers will still have to deal with heavy boxes and large cuts. They did a remarkable job of merchandising these cuts last year and will need to do the same in 2013. Restaurant operators will also need to be creative, to avoid the appearance that the steak they’re serving people has been cut in half to fit the plate.

Industry has over-capacity

Meanwhile, finding enough cattle to allow feedlots and beef processing plants to run efficiently will be the top issue for feeding operations and packers this year. U.S. cattle numbers will decline to their lowest level since 1952, with a loss of 14.5 million cattle since 1996. This will exacerbate the 35pc over-capacity in the feeding industry and the 10pc over-capacity in beef processing.

In fact, the 10pc figure will increase this year. My annual survey of the top 30 US beef processors reveals that their combined slaughter capacity increased 1.8pc last year from 2011.

The main reason for the increase is the listing for the first time of two new operations, one in South Dakota and the other in Minnesota. These two plants added 1500 head and 550 head of capacity, respectively.

My annual survey of the top 30 cattle feeding operations shows that they reduced their combined pen space by 53,000 head over the past year. This reversed a 59,000 head increase in 2011. At least three operations closed finishing yards or sold them in 2012 and more will likely close this year.

Concerns about the feeder cattle supply are justified. Supplies will shrink in 2013, as the US cattle herd is forecast to have fallen in 2012 by 1.7 million head to 89 million head on January 1.

The 2012 calf crop is forecast to have declined by 2.4pc or by more than 800,000 head from 2011. Meanwhile, imports of feeder cattle from Canada will remain historically small in 2013 and imports from Mexico are expected to decline sharply.