US - Retail beef prices in March increased compared to the previous month but they were still about 5 per cent lower than the previous year and down 7.9 per cent from the peak in May 2015, reports Steiner Consulting Group, DLR Division, Inc.
The decline in retail beef prices follows the decline in wholesale beef prices at the end of 2016 and early 2017. The chart below shows the fairly strong relationship between wholesale beef values, as represented by the choice beef cutout, and the value of beef at retail.
We have lagged the choice beef price by two months, in other words, relating the value of choice beef in January 2017 with retail prices in March 2017. What stands out in the last 12 months is that retail beef prices have been higher than one would expect given the long run relationship.
Some of this may be due to the retail price data series itself, since it is not a weighted by sales volume. The other reason may be due to the fact that wholesale beef prices last fall and winter declined at a fairly rapid clip and retailers have taken their time to adjust.
Wholesale beef prices in February declined compared to the previous month but they rose sharply in March. The average choice beef cutout in March was $216/cwt, 13 per cent higher than the previous month but still about 4 per cent lower than the previous year.
So far in April the choice beef cutout has averaged $210/cwt, 4 per cent under last year’s levels. Market participants in the futures markets are now likely pondering what effect the stronger than expected cutout values will have on retail prices and eventually the amount of beef consumers will buy.
Because retailers took their time in adjusting prices lower, it appears unlikely to us that we will see a notable increase in retail beef prices this summer. Some of the speculation that higher prices will kill beef demand may be overstating the case a bit.
What may be a bit more problematic for beef demand, especially once we move past the key summer holidays (Memorial Day, 4 July) is the price of competing proteins and beef trade flows. So far this year beef supplies available in the domestic market have increased but not as much as one would expect if you were simply looking at the slaughter numbers.
For now retailers and foodservice operators are in full swing preparing for the seasonal improvement in demand that comes from warmer weather. Consumer confidence is at the highest level it has been in almost a decade and consumer disposable income growth has returned to pre-recession levels.
The unemployment rate is at 4.5 per cent. In other words, these should be good times for beef demand and retailers could opt to keep prices in check (after all their margins are still good) and capitalize on consumer willingness to indulge as the grilling season gets underway.
TheCattleSite News Desk