U.S. Non-Fed Beef Supply Drops, Lean Prices Up

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Click here for a graphic of  Cow and Bull Beef Production

By Randy Blach, Cattle-Fax CEO

The number of cows and bulls harvested during 2005 will be the smallest total of any time during the last 40 years.  It’s been well documented by Cattle-Fax that the productivity of the nation’s herd has improved dramatically during the past three decades.  In essence, today’s total cattle inventory is 35 million head smaller than in 1975 but it’s producing just as much beef.

Consumers Love Ground Beef:  U.S. consumers have always loved ground beef.  It’s flexible, tastes great, can be used in all kinds of recipes and is affordable to shoppers in all income ranges.  Consumer research suggests that between 45 and 50 percent of the beef eaten in the U.S. is ground beef.

Supply Situation:  U.S. production of non-fed beef (lean beef) will be about 700 million pounds smaller in 2005 than in 2003.  That’s more than a 2.4 pound per capita decline.

Lean beef prices (85 percent to 93 percent) have traded at record high levels during 2005.  The market has responded to the historically small non-fed beef supply and has sent a signal to the world market in order to attract more lean beef to help satisfy the demand.  Beef imports will be 700-800 million pounds larger during 2005 than in 2003, which is nearly identical to the decline in lean beef production in the U.S. during the same time.

Bottom Line:  Cattle-Fax estimates that the non-fed beef supply consumed in the U.S. during the last five years has averaged 6.3 billion pounds, with a small variance  from 6.25 to 6.5 billion pounds on an annual basis.  In essence, the market has worked as it should.  The world price for lean beef moved to record high levels to fill the supply shortage.

If allowed to work, the market is highly efficient at sending signals to participants that will either attract more supply or discourage it.  This is a perfect example of a market sending a price signal to the world marketplace that said “supply more lean beef,” and it did.  If this had not occurred, pork and poultry could have quickly picked up the unfilled beef market share.  The amount of beef consumed in the U.S. will total nearly 28 million pounds in 2005, similar to a year ago.