This is a topic of discussion within the beef industry. The following article does not necessarily represent the opinion of the Beef Checkoff. The following is a transcript from a conversation on April 16, 2014 with Dr. Glauber about beef prices. NOTE: Dr. Glauber retired from the USDA at the end of 2014.
Dr. Glauber, to begin, please tell us about the role of the Office of the Chief Economist within the U.S. Department of Agriculture.
The office of the Office of the Chief Economist (OCE) advises the Secretary of Agriculture on economic data and programs affecting the U.S. food and fiber system. The office also provides publicly available information, such as commodity, farm sector and weather forecasts, to agricultural producers and consumers to make informed decisions. The USDA has had a Chief Economist since the 1920’s.
Often you hear beef consumption reported as an indicator of demand for beef, can you clarify the difference.
During periods of high beef prices, consumers tend to look for more value cuts of beef. For example, if steak prices are high relative to ground beef, shoppers will be more likely to purchase ground beef for their beef needs. Or consumers may switch to lower priced meats like pork or poultry though prices for meats typically follow one another. However, beef demand is strong; there is no question about that. Demand is strong in both the foreign and domestic markets. It is also important to note, when you look at published inflation numbers and beef prices, this data does not necessarily capture how the item’s being featured (sale prices and discounts) in grocery stores.
Lately it has been widely reported in the media that beef prices are the highest since 1986; is that true?
This data is based off of individual cuts of beef, not beef as a whole. Overall inflation and inflation of all food items has increased a lot since 1986; if you look at inflation in real terms, meaning adjusting for the purchase price of the dollar, it’s not a record. We are down from those price levels. In nominal terms, meaning no adjustment to the purchasing power of a dollar, you are seeing some cuts at record levels.
There is a lot of mention of the domestic cattle herd size, and the herd size being the lowest is has been in a significant number of years. When do you forecast cattle producers will begin to rebuild the nation’s cattle herd?
We have been expecting the herd to be rebuilt for a number of years now. But because of high feed costs and drought we have not seen the expansion that we might have thought possible given the high price of cattle. Typically when there are higher prices for cattle, the domestic herd expands. Expansion takes time. If you look at a poultry flock, they (poultry producers) can make adjustments pretty quickly. Hogs take a little more time, cattle take the most time. A calf can take two years or more to go to market.
If you look at production numbers, we did see some increase in the cow herd in the Upper Midwest and the Eastern Corn Belt area. However, most of the areas west of the Mississippi did see a decline. The concern is that 45% or more of the cattle inventory is currently in a drought area. Some of these areas have been under persistent drought for over four years. There is also feeder cattle from Canada and Mexico being imported, those additional cattle help with the supply as well.
We believe we will see positive signs toward herd size increase in 2015, but that means we will not see significant supply changes until 2016.
You mentioned drought as a cause of higher prices and a smaller cow herd, what does the drought actually mean for cattle producers?
Some cattle are being moved out of areas where we are seeing drought conditions. They are being moved to areas with better pasture conditions. Long-term drought does take a toll. It would help to have better pasture conditions in the highest cattle-producing regions of the country. We are now in the fourth year of consecutive drought, and there is certainly a concern that drought will take a further toll before we are done.
We often get the question, will the nation run out of beef. Is that a possibility?
We are not going to run out of beef. We are seeing the results of tighter supply in the form of higher prices, not shortages.
For more information about the Office of the Chief Economist visit www.usda.gov/oce/.