NORMAN — With low cattle numbers across much of the country, beef production will fall sharply by the end of this year. Dr. Darrell Peel, Oklahoma State University livestock marketing specialist, provided some thoughts on what consumers and producers should expect for 2014.
Peel expects beef production to fall sharply in the coming year and that this reduction in beef will apply additional pressure to increase wholesale and retail beef prices. This will lead to much concern in the beef industry that beef will “price itself out of the market.” These concerns are understandable, and there is, indeed, much uncertainty about beef markets for the next couple of years.
However, it is important to remember how demand works and keep in mind the many factors involved in demand.
While there is concern that consumers will buy less beef with higher prices, it is important to keep in mind that there will be less beef on the market and, thus, a need to ration beef. The economic principle of demand is based on the concept that when a smaller quantity is available, higher prices will ration beef to those consumers who are most willing and able to purchase beef.
In general, the idea that higher prices will restrict consumption of beef is precisely what will be needed to balance supply and demand in the coming months.
However, beef demand is very complex. Beef is not a single market but rather consists of many distinct but related markets. At higher prices, there will be much substitution between beef products and also with other protein sources. The unprecedented beef market situation makes it very difficult to know exactly how consumers will adjust the mix of beef products as well as total quantity of beef consumption at record price levels.
Quality will be of paramount importance in beef markets at record prices. Especially for middle meats, the ability to support premium beef prices will depend on consistently providing a premium product.