Is Beef still king?

This article contains beef production and price forecasts for 2024

Around October 2022, at the Global Protein Summit in Chicago, we presented our forecasts for 2023 for the beef industry. Back then, we estimated that beef production would contract between 4 and 6 percent for all 2023. Around February 2023, once more figures became available, we reran the estimates and suggested that production was more likely to contract by around 4.3 percent. In other words, we estimated the contraction would side on the low end. The official figures released by the USDA suggested a contraction of about 4.5 percent, which means our forecasts came very close. As of early April, our forecasts paint a not-so-different picture.

Amid the lowest cattle herd in decades, caused mainly by drought and high feed costs—among others, of course—over the last few years, the figures were unsurprising to many in the industry. That is because cattle slaughter and inventory figures are released constantly and are relatively easy to measure, particularly if the cattle cycle is well understood. While we will not explain cattle cycles—since this is a technical topic—we will point to a few indicators that sounded the alarm early on. For example, when we analyze the trend of heifer retention or liquidation, we can indicate where we could be in the cattle cycle. In this simple exercise, we looked at the trend starting in 2008 and going all the way until 2024. For instance, we noticed that heifer liquidation ensued the last time we hit drought years in 2011-2012; in other words, more heifers were slaughtered as a percentage of all cattle. After the drought years passed, we noticed a noticeable trend of heifer retention that peaked around 2015-2016 as ranchers rebuilt the herd. After hitting the exhaustion point, the industry began seeing an uptrend in heifer slaughter figures. While this doesn’t mean full-on liquidation, they move in the opposite direction to rebuilding rates. Aside from the heavy heifer liquidation figures caused by the pandemic—again, not something we will focus on today—heavy heifer liquidation ensued from 2021 and partially through 2023 due to heavy drought conditions.

Again, this simple exercise was one of the indicators that led us to prepare figures to estimate beef production and forecast beef prices for the future. Since we got the production figures relatively “on the money” for 2023, we now risk showing this for 2024. However, this year will be more challenging since we now see a heavy divergence between heifer slaughter and overall slaughter that we have not seen in at least 16 years. In addition to this, we have many other moving factors, such as the effects of El Ni?o on grain crops for feedlots, beef demand, and prices, and all the factors that affect the latter, like the potential of a slowdown in the economy, among others. For this exercise, we estimate production as a function of cattle slaughter and weights, which are then a function of the cattle figures on feed by weight category, from under 600 pounds to over 800 pounds. As such, for 2024, we expect a contraction in beef production between 0-4 percent, with a slight possibility that it could expand by 1.4 percent from a year ago. The latter is not likely, but other factors are at play, such as cattle weights, which are a function of pastures and feed—grain—prices, among others.

Naturally, beef prices are a function of beef production and demand. In other words, beef prices will fluctuate depending on beef supply or availability relative to the amount demanded by consumers. While this basic fundamental statement makes sense to many, sometimes it fails to deliver the message of simple supply and demand equilibrium. In other words, when there are imbalances, prices will fluctuate, and as such, one can see these prices become volatile. That is when the term “elasticity” can become wordy, but it simply means how sensitive consumers are to price levels. For example, if prices rise rapidly, consumers may absorb much higher prices in the near term but would then adapt if these higher prices persist and consume less, all else equal. The same would apply if prices decrease, in which consumers may not consume more just because prices dropped but may consume more if these lower prices persist. To illustrate this, we created a beef demand index, a function of inflation-adjusted prices, beef supply—a function of beef production, inventories, imports, and exports—and population growth. The latter is to estimate per-capita consumption per year. As we can notice, there are times when “elasticity” changes due to significant changes in price, but then it tends to normalize.

The index also shows periods of contraction and expansion. As we can see, demand for beef expanded slightly as the last prices rose due to drought in 2014-2015. It also expanded previous to the pandemic, as well as throughout. However, as prices reached historical highs and the post-pandemic excesses began correcting downward, we saw demand contract in early 2022. Still, demand remained steady throughout 2022 and early 2023, only to see it expand throughout 2023 as prices rose. Again, a “steady” level means demand adjusts to prices and availability or finds an “equilibrium.” Currently, demand is not in equilibrium, as prices remain “elevated” relative to availability. This imbalance will continue to adjust as beef production will likely keep changing in 2024 and subsequent years if the herd is to be rebuilt. Other factors, such as consumers' willingness to spend given current high prices at the previous rates, are essential but also challenging to measure. However, our current price forecast 2024 points to a structurally higher level than in previous years.

This beef demand index suggests that, while there are imbalances due to higher prices, U.S. consumers still rate beef highly and will continue to eat beef despite minor, temporary adjustments to their habits. Of course, we don’t know if 2024 will remain as such, but as of now, beef remains king.