Strong
Beef Demand Growth During 2004, But Growth Could Slow This Year
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by James Mintert, Ph.D., Agricultural Economist, Kansas State University
U.S. consumer demand for beef rose again during 2004. This past year’s
increase in Choice retail beef demand was the largest increase since
beef demand started to rebound in the late 1990’s. Since 1998,
when domestic beef demand bottomed out, Choice retail beef demand
has increased approximately 25 percent. Looking ahead, domestic demand
growth is likely to slow during 2005.
Fortunately for U.S. beef producers, U.S. consumers did not back away
from beef following discovery of a single BSE case in late 2003. In
fact, strong domestic beef demand, particularly during the first half
of 2004, helped the beef industry weather the dramatic decline in
export demand that occurred during 2004. Per capita retail beef consumption
in the U.S. during 2004 totaled 66.1 pounds, an increase of 1.8 percent
compared to 2003. The consumption increase occurred despite the fact
that domestic beef production declined 6.4 percent from the prior
year. The primary reason that domestic consumption increased at the
same time that production declined was that U.S. beef exports during
2004 fell 82 percent below 2003’s and beef imports rose 22 percent.
Part of the increase in imports came about because Canada was able
to export boxed beef from animals less than 30 months of age to the
U.S. throughout 2004, compared to partial access during 2003. Despite
the modest rise in beef supplies facing U.S. consumers, the inflation
adjusted price of Choice retail beef during 2004 was 5.7 percent higher
than 2003’s. Since domestic consumers ate more beef and were
willing to pay a higher price for the larger quantity, it means domestic
beef demand increased compared to 2003. Beef demand index calculations
indicate U.S. beef demand during 2004 increased 7.6 percent above
2003’s.
Beef demand growth was strongest during the first three quarters 2004.
During the first three quarters of 2004 domestic retail Choice beef
demand increased 10.9%, 9.3%, and 8.9%, respectively, compared to
2003. The strong year-to-year demand growth during the first nine
months of 2004 was a continuation of the extraordinary demand growth
that took place during the last six months of 2003. It’s difficult
to sustain dramatic demand growth like that observed during late 2003
and the first three quarters of 2004. Sure enough, domestic beef demand
growth slowed appreciably during the fall.
Domestic beef supplies increased markedly during fall 2004 compared
to fall 2003. Per capita beef supplies totaled 16.3 pounds during
the fall, 9% larger than a year earlier. The large increase in supplies
pushed inflation adjusted Choice retail prices below the prior year
by 5.9 percent. Although significant, the price decline was less than
expected with stable beef demand, given the large supply increase.
As a result, domestic beef demand was stronger during fall 2004 than
during fall 2003, but the increase was small compared to the five
previous quarters. Beef demand index calculations reveal that demand
growth during the fall quarter slowed to 1.8 percent.
Improvements in domestic beef demand since the late 1990’s are
attributable to several factors. Growth in consumers’ incomes,
introduction of new, high quality beef products that meet the needs
of time strapped consumers, and reduced emphasis on negative health
information as it relates to beef consumption all played a role. But
it’s become increasingly clear that consumer interest in low
carbohydrate diets also provided a welcome boost to beef demand in
recent years. Some survey data suggests that interest in low carbohydrate
diets has peaked and is actually starting to wane. The slowdown in
beef demand growth during fall 2004 is consistent with the notion
that interest in low carbohydrate diets has peaked. Looking ahead
to 2005, it seems likely that domestic beef demand gains will be far
more modest than the robust increases observed in late 2003 and the
first three quarters of 2004.©
