There is no doubt that the faster and stronger than expected improvement in cattle and beef markets so far this year was due to unexpected help from both the supply and demand sides of the market. On the supply side, the obvious tightness of cattle numbers was supported by weather impacted carcass weights that stimulated currentness in fed cattle marketings and is still benefiting the market at this time. Moderating feed grain prices and generally good forage conditions around the country have supported both feedlot and stocker demand for feeder cattle. However, demand has helped too and it is more difficult to get a handle on just how much demand has improved and whether there is a trend in place that we can count on in the second half of the year.
There a several factors affecting demand both fundamentally and psychologically. Arguably, most of the improvement so far is more psychological than fundamental. Fundamental factors such as unemployment and the overall labor situation have not improved much yet. However, there are indications that, while consumers have a long road ahead to heal their personal financial woes, a good bit of the uncertainty that paralyzed consumer spending the last 18 months is beginning to decrease. People that are employed are less concerned about losing their jobs and are beginning to return to somewhat more normal spending patterns. One of the unknowns is how much consumer spending may be permanently changed by all this. Certainly there is a need for personal savings rates in the U.S.to remain higher than prerecession lows and that suggests that consumer spending as a percent of disposable income would remain lower than before.
There is nevertheless a likelihood that consumers will return to more familiar spending patterns and this will help, not only total beef demand in terms of quantity, but importantly will lead to a switch back to more middle-meat based demand. Restaurant performance surveys continue to show improvement based in part on better sales recently but also on expectations for coming months. However, the rate of improvement of the index is fairly slow. This is likely to be an on-going process over many months and possibly years. One of the questions in the very short run, that may well present the first real test of how much demand has improved, is that much of the recent wholesale beef price increase has not been fully reflected in retail prices. The post-Memorial day assessment of the holiday weekend and the resiliency of boxed beef prices into June will be an important indicator.
To read the rest of this story please go to: Oklahoma State University Cooperative Extension Service
