Kay's Korner

Aug 10, 2012

Quality is even more critical

Beef producers face the most widespread drought in their lifetimes. This means their drought management options are fewer than in years when droughts might have been just as severe but much more local. Take the historic Texas-Oklahoma drought that finally broke this spring. Cow/calf producers were forced to sell calves early and send cows to slaughter. But many held the core of their herds together by sending cows to other states. That’s not an option this summer, as moderate to severe drought now covers two-thirds of the continental U.S. and 70 percent of the U.S. beef herd is under drought.

It will be a huge challenge for producers to keep their herds intact and focus on improving their quality at the same time. Yet the latter is what they need to do because the drought’s impact on herd rebuilding means consumers will have to pay more for beef for the next three years. USDA forecasts that retail beef prices will increase 3.5 percent to 4.5 percent this year and another 4 percent to 5 percent in 2013. These forecasts might be conservative. June’s All Beef price averaged $4.71 per pound, up 6.3 percent on June last year.

The drought appears likely to force herd numbers lower by nearly 1 million head by Jan. 1 next year. This would put the U.S. cattle total below 90 million head. The industry will also see a sharp decline in Mexican feeder cattle entering the U.S. in 2013. Extreme drought forced more cattle north than normal in 2011 and is doing the same this year. Mexican imports the first 28 weeks totaled 964,645 head, up 31 percent on the same period last year. Total imports this year might reach 1.5 million head, which guarantees a huge decline next year.

The declining U.S. numbers mean that domestic beef production will likely decline by 4 percent or 1 billion pounds this year from 2011, according to USDA. It will decline by another 2.4 percent or 0.6 billion pounds in 2013. Unless beef exports continue to decline in volume terms and imports continue to increase, per capita beef supplies will also decline further in 2013. USDA forecasts 2012 supplies at 56.1 pounds per person (versus 57.3 pounds in 2011) and at 54.5 pounds in 2013.

Consumers will thus be forced to pay more for beef at retail and foodservice because less will be available. This would not be such an issue if the U.S. economy was stronger and showed signs of real growth. That’s not the case, however, and cautious consumers are likely to keep buying cheaper pork and chicken to fulfill their protein needs. This will especially be true if the price of beef’s most important product, ground beef, continues to increase.

Here’s where the “quality” element becomes even more important. Consumers have been buying more meat and poultry on absolute price than relative value since the recession in 2008. To persuade them to keep buying beef on relative value, that value has to improve even more. Remember that value equals quality versus price. If beef prices keep rising, the quality of beef offerings at retail and foodservice will have to improve as well.

The industry has an excellent foundation for continuous quality improvement. The dozens of marketing programs that reward producers for producing higher-quality cattle and carcasses are testament to this. The latest National Beef Quality Audit offers tangible evidence of improvement. Increased percentages of carcasses grading USDA Prime and Choice suggests continued improvement (since the 2005 audit) in product eating quality, it says. It further notes that beef tenderness has remained consistent over the past five years. The audit calls this an industry strength, although I was disappointed that tenderness did not improve.

There’s work to be done though to get the production side of the industry more focused on quality. The audit showed that beef’s eating satisfaction was first on the list of important categories for food-service/distributors/fur ther processors, and second for retailers and packers. But it was only sixth on the list for cattle feeders.

Tellingly, the audit notes that representatives of different industry sectors speak “different languages” when defining beef quality. Because quality is perceived so differently, market signals related to quality and transmitted from consumers back through the beef chain to producers remain unclear, says the audit. Terminology about quality among segments is not standardized and it urges this to occur.

The importance of food safety is increasing, notes the audit. Because it and eating satisfaction are seen as both strengths and weaknesses, continuous improvement in these areas should be an industry-wide focus for enhancing the quality of beef, it says.

One of the audit’s most important points is that the industry needs to tell the story of beef production better and “step up its game” in telling consumers what it does and why it does it. I regard this, and improving beef’s quality, as essential if the industry wants Americans to pay even more for beef the next few years.—Steve Kay

(Steve Kay is Editor/Publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707/765-1725. Kay’s Korner appears exclusively in WLJ.)