It's not like beef is a non-renewable natural resource, but global demand running ahead of stable to declining supply promises to drive prices higher.

“Consumers on this planet haven't consumed less meat year-to-year since data has been kept,” says Brett Stuart, a Cattle-Fax market analyst. That's total meat supply. Though global beef consumption faltered for a couple of years during that stretch, Stuart explains that average per-capita beef consumption has increased 2%/year on average for the better part of five decades. Come sun, rain or financial storm.

For anyone fretting over the potential impact the current financial crisis might have on beef demand, Stuart harkens back to the Asian financial crisis of 1997-99, the most previous world-jarring financial event. Looking at beef demand data, he says you can't tell when the financial upheaval began or ended. Especially in light of the dollar's weakness today, Stuart says U.S. beef remains an extraordinary bargain around the world.

Even here in the U.S., wholesale beef prices have remained amazingly strong through the economic and commodity shocks of the previous 18 months. Rather than substitute other sources of meat protein for beef, for the most part, consumers have simply opted for lower value beef cuts. Robust chuck and round demand, as well as historically high hide and offal values, have underpinned the market.

“Population and per-capita income drive beef demand,” Stuart says. By those measures, global beef demand stands at the threshold of blooming growth, notwithstanding the current financial conundrum.

For one thing, world-wide population is growing annually by 78 million people. Perhaps more significant, Stuart points out per-capita economic growth means sizeable chunks of the population are only now in a position to afford meat as a diet staple. For example, he points to Latin America and Southern Asia, where population and per-capita income are growing rapidly. Consumers there are transitioning from starch-based diets heavy in rice and beans to protein-based diets built around meat.

Even in economically developed countries, more consumers are choosing meat, in general; and beef, specifically. In Japan, for instance, where 72% of consumer diets consist of seafood, Stuart says younger consumers are Westernizing their diets, choosing more meat.

Static to dwindling supplies

On the other side of the equation, beef production is lagging behind.

Consider the four leading countries for beef production in terms of tonnage — U.S., Brazil, the European Union (EU) and China, in that order. Stuart says they account for 69% of global beef production.

You know what's happening here. U.S. beef production will be near-record this year, thanks to continued herd liquidation and increased carcass weights. Beef cow numbers are 1% below a year ago. Folks like Stuart expect no expansion in beef cow numbers for at least the next 2-3 years, possibly longer. According to Jim Robb, director of the Livestock Marketing Information Center (LMIC), per-capita beef supplies in the U.S. for 2010 are expected to be the lowest since 1959.

It's no different with NAFTA partners Canada and Mexico. According to Erica Rosa, LMIC agricultural economist, the beef cowherd there has shrunk more during the year than was anticipated at the outset. Imports of Mexican feeder cattle to the U.S. were 80% fewer this September than last, as more cattle remain in-country, responding to that country's shrinking cowherd, relative to demand.

Back to the other key producers, Stuart says cattle slaughter in Brazil — the world's largest beef exporter — is 7% less than last year, and more of that country's production is remaining home to supply domestic demand. According to USDA's Foreign Agricultural Service, Brazilian beef exports will be down about 17% this year, due in large part to restrictions imposed by the EU.

Likewise, though China's cattle numbers are expected to increase another 2-3% next year, Stuart explains expansion there has cooled from its heady pace of the past several years. By and large, China's production goes toward its own consumers.

As for the EU, both Rosa and Stuart point out beef cattle production there is in the midst of sustained reduction that has been ongoing for more than a decade.

Then there are other key players on both sides of the international import/export equation. Australia, the globe's largest beef exporter behind Brazil, continues to be immersed in persistent drought that continues to cut its numbers.

On the other hand, the Russian Federation — the world's largest meat importer — has shrunk its domestic cowherd by two-thirds since 1990 — going from 40 million head to 16-18 million head today. Apparently, even cattle producers in a communist-based system understand when to take the money and run.

All told, the anemic value of the U.S. dollar is a factor in reduced U.S. beef imports this year, but Rosa points out it's also because there is less supply world-wide than there has been.

Incentive runs behind cost

None of this is to suggest looming beef shortages or supply disruptions will affect consumers. However, current supply and demand reality sets the stage for what expansion demands.

“Globally, demand is outpacing supplies, which tells me global beef prices will go higher,” Stuart says.

To this point, though, input costs continue to run ahead of the incentive to expand. When prices catch up, though, the U.S. is positively positioned to exploit the supply imbalance. At that time, supplies will grow even tighter as more heifers are retained for the expansion.

Along with quality and a stable infrastructure, Stuart emphasizes, “U.S. beef is very competitively priced around the world.” Even with the current financial doldrums, Stuart points out that in countries like Japan, lower priced U.S. beef is what cash-strapped consumers trade down to. He adds, “We may have more potential in Japan (U.S. beef exports) than in any other country during the next 10 years.”

Perhaps Robb summed the potential most aptly during this fall's Wheatland Stocker Conference: “The EU is considering U.S. beef for the first time in 25 years because of supply.”

Largest Beef Importers

  1. United States
  2. Japan
  3. Italy
  4. France
  5. Russia
  6. Netherlands
  7. Germany
  8. United Kingdom
  9. Mexico
  10. South Korea
  11. Canada
  12. Hong Kong

Source: U.S. Meat Export Federation

Associated Figure