A Deeper Understanding of Beef Demand
Posted on 2/27/2017 by Melissa JacksonTweet Email
Suggested Lead: Beef demand is critical to understand and monitor as it directly influences overall beef-industry prosperity. That’s why Glynn Tonsor, Kansas State University, recently examined the feasibility of developing new foodservice and grocery store beef demand indices.
(Click here to download the audio file.) Tonsor 1: “Throughout 2016, we looked at various ways to assess beef demand strength. The motivation for that was, currently there’s a very curt and aggregated way to monitor beef demand, but there’s a lot of limitations with our current approach. And the purpose of this project was to build new indices, explore if they make sense, and then draw a recommendation for the industry of which ones to retain going forward. The reason that the average producer should care is consumer demand dictates how many dollars are available for the total industry. And if consumer demand is going up, then we know wholesale beef values are higher, we know fed cattle prices are higher, therefore we know all feeder classes are going to be higher. When beef demand is lower, the reverse occurs.” (:42 seconds)
It’s important to remember that supply and demand are not the same, Tonsor explains.
(Click here to download the audio file.) Tonsor 2: “Demand and supply are different. Supply is simply what’s available: so the size of the herd gives us the number of animals in the system; the pounds put on gives us the amount of beef that’s available. So the amount we produce is really what we consume. So per capita consumption is literally just the amount of beef available, divided by the U.S. population. Demand accounts for the fact that people pay a different price over time. They value those pounds differently over time. So that would be my separation between supply and demand, is demand brings the price, the value component, for the pounds' end of the story. Supply is simply a volume measure.” (:36 seconds)
Despite the usefulness of existing demand indices for monitoring demand strength, they suffer from a number of important limitations. Tonsor explains what the research found.
(Click here to download the audio file.) Tonsor 3: “We gathered data from IRI, so we were able to build a host of demand indices specific to the grocery store channel, and ultimately concluded those are pretty viable. So we suggest the industry support indices that are specific to the grocery store arena both for aggregate beef for the country as well as aggregate beef by region. And then also broken out by ground beef and steak and a couple other distinctions.” (:23 seconds)
Tonsor says having indexes that are available to update more frequently and can be dissected by product or market region can be especially informative about where demand is changing most. Armed with such information, the beef industry could better adjust, target, and monitor progress of product marketing strategies.
(Click here to download the audio file.) Tonsor 4: “I think program managers within the industry can use this information to refine their efforts. Likewise, retailers could assess how strong beef demand is in their region;or, for a particular beef cut type, and in some sense, crosscheck that with what they see in their stores or company. So they can use it as a bit of a benchmark for, ‘This is what my numbers say. How do they compare to others?’ Or, “Others are seeing ground beef demand grow, why am I not?’ But those kinds of things could be used by individual entities to kind of crosscheck an aggregate story. But I would add another one: we can be more strategic. It’s good to be quicker, but also the more strategic of focusing our resources where we see beef demand being impacted, so if we could reduce those efforts and reallocate those dollars – be more strategic about that – that’s where you could get notable ‘bang for the buck’.” (:49 seconds)
The research executive summary and full report, as well as information about your checkoff investment, can be found at MyBeefCheckoff.com/Demand.