The U.S. protein market is a dynamic series of transactions linking all protein sources: beef, pork, poultry, as well as smaller markets like lamb and seafood. This is obvious even from our transactions at a grocery store meat counter. We enter the store with a set of preferences regarding what meat we wish to buy, compare quality and price levels of the meat options, and ultimately make a purchase. While choices vary by consumer, we generally accept that beef, pork and poultry are substitutable protein sources. So the amount of one protein we purchase in the store is somewhat dependent not only on that protein’s price, but also the relative price of a competing protein. Price is clearly not the only decision factor when choosing between competing proteins, but it is very relevant today to beef marketers as tight supplies lead to record prices. Many expected higher beef prices to weaken demand, but so far demand has remained strong and 2014 has proven to be an interesting example of the complex relationship between competing protein markets. We will explore this system further by examining supply and demand for beef, pork and poultry.
Background
Cattle inventory is currently at its lowest level since 1952. An ongoing drought cycle and several years of negative feedlot returns drove producers to drastically reduce herds in 2011 and 2012. The re-expansion phase is progressing but drought is still heavily affecting the Great Plains and the Pacific Coast. The total cattle inventory declined 1.8 percent from 2013, and is not estimated to see a year over year increase until 2016. Year to date, the number of cattle placed on feed is down 4 percent. Also important to note is the shifting of where these cattle are being produced, a disproportionate amount of the decline in herds has taken place in the south. Since 2011, the U.S. beef cow herd declined by roughly 1.8 million head – 62 percent of those, or 1.1 million head were located in Texas.
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