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Steve Kay’s View: Satisfying US consumers’ craving for ‘indulgence on the cheap’

Beef Central, 28/11/2012

 

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

 

CBW publisher, Steve KayAmerica faces a beef ‘deficit’ in the coming year that will challenge every sector of the US beef industry, but will provide a golden opportunity for Australian beef to gain a bigger foothold in the lucrative market.

I use the term ‘deficit' in that per capita beef consumption next year will decline relative to how much beef people would like to eat. USDA’s latest forecast is for available beef supplies (production plus imports minus exports) in 2013 to be 54.8 pounds per person (25kg), down two pounds from 2012.

Compare this to the 90 pounds (41kg) that each American ate in the 1970s and one can see how much the US beef supply has shrunk in relation to the population.

Per capita supplies of pork and chicken will also be down next year, according to USDA. But the declines are smaller than for beef, which means Americans will continue to eat more pork and chicken and less beef.

This has nothing to do with preference. It’s simply a matter of available supplies of each protein. I remind myself that Americans love beef, quite like pork and only eat chicken because their doctors tell them to. At least that’s one way to stay optimistic about the beef industry’s ability to make money in the face of supply and demand challenges.

The historic 2010-2011 drought in Texas and Oklahoma removed 948,000 beef cows from these two states. It removed another 112,000 cows from surrounding states and most remain drought-stricken today.

This year’s drought, the most widespread in 55 years, might remove another 500,000 beef cows. More important, it dashed any hopes of beef herd rebuilding through net heifer retention.

The national herd on January 1 2013 will be below 90 million head for the first time since the early 1950s. The result is an industry significantly smaller than it was 17 years ago. It’s startling to realise that the US has lost 14.5 million cattle since 1996. Yet the herd might continue to shrink until 2015.

This has significant consequences for all involved in the beef chain.

The deepest impact will be on consumers. The shrinking beef supply will force prices higher. USDA forecasts that the retail price of beef in 2013 will be 5pc higher than this year. The drought will raise the year’s grocery bill for a family of four by US$351, according to the Food Institute. Higher grocery bills will be most notable in the meat section where a family of four can expect to pay $44 more in 2013 than this year, says the institute.

Such price advances might seem modest. But they must be put in the context of many Americans’ struggle to pay more for food, as the US economy remains somewhat weak and unemployment remains high. This struggle began in 2008 at the height of the recession and its effects on the beef industry remain to this day.

More than half of all beef is now consumed in some form of ground beef, as that is the only affordable beef item for many. Consumption includes everything from fresh ground beef at retail (mince to Australians) to meatloaf to every kind of beef patty imaginable at the grocery store or in restaurants.

 

‘Indulgence on the cheap’

Americans love their hamburgers almost more than a good steak. So the trend of more beef cuts being ground up will continue.

I recently visited my son in southern California and he took me to an upscale pub in Santa Monica. The place was jammed with people mostly his age (late 20s) but what hit me was the smell of great food. It seemed everyone was eating burgers so I ordered the special. It was delicious. It cost $12 but I felt it was value for money.

Millions of Americans are having a similar experience. The gourmet/specialty burger business is booming. Relatively new chains, independent eateries and even white tablecloth restaurants are using high quality patties with exotic additions to create upscale sandwiches (in the US, the term, ‘sandwich’, is used to describe virtually any item between bread, including burgers, ed).

These sell at much higher prices than the basic sandwiches offered by the fast food giants, with prices up to $15 per serve. Consumers appear happy to pay such prices, as they regard gourmet burgers as “indulgence on the cheap.”

Growing hamburger consumption comes as domestic supplies of lean beef will decline sharply in 2013 because of reduced cull cow slaughter. Grocery and hamburger chains will rely even more on fulfilling their needs with imported beef.

USDA currently forecasts that imports in 2013 will total 2.620 billion pounds, up from 2.242 billion this year and 2.057 billion in 2011.

The scramble for lean manufacturing beef is already showing up in pricing, as Beef Central has highlighted. My take is that prospects for Australian exports to the US will be bright in 2013, despite a strong Aussie dollar. Americans will want to keep getting their beef fix and end-users will keep paying more for beef, as they know chicken won’t satisfy that fix.

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