As consumers move away from premium cuts, the cattle industry should adjust accordingly

Burgers, in all their meaty iterations, are a staple of the U.S. diet. Given our love affair with these juicy vittles and the sting of the recession not so far behind us, should it really come as any surprise that ground beef is growing in its popularity when compared to prime cuts? When Don Close, Rabo AgriFinance’s U.S. beef and protein analyst, explored this emerging trend in his report, “Ground Beef Nation,” he got the beef industry’s attention.

So what’s the beef? Based on his observations of shifting consumer trends and the current beef production model, Close posed the question: Is the industry giving the consumer want it wants? What it wants is ground beef. In fact, the ground product accounts for 60 to 62 percent of the market share over prime cuts.
 

According to Close’s findings, for the U.S. cattle industry to stay competitive against other proteins, it must adjust the current production structure, one focused on producing prime-grade products, and aim to improve efficiency and margins by determining an animal's best use early on and then “raising one-third to one-half of the animal’s primarily for ground beef.”

“The industry has been so focused on the high-end cuts and like to think about their product offering as steaks, roasts and other conventional cuts, but if the consumer wants ground beef, let’s give them ground beef,” Close explains. The report "realigned their thinking. It was released during a strong price rally when ground beef prices really started to increase and not only increase in net, but also in relation to the other beef cuts.”
 

As beef prices remain on the upswing, the beef shortage has forced the United States to import more lean beef and use more fed beef cuts to compensate for the supply gap.

Consumers call the shots

Weakened by drought and increasing international competition for imports, tightened U.S. beef stocks have been coming up short. Forecasts suggest that the sector will continue to see double-digit declines throughout the rest of the year. 

Despite the fact that the price for ground beef has gone up in comparison to say, the prime cuts, its popularity continues to rise. Why? Well, consider which protein a large family or anyone on a fixed income prepare for supper on a Tuesday night: Chicken? Yes – especially the health conscious. Pork? Increasingly so. Ground beef? You bet. Steak? Not unless it’s a special occasion. 

“The consumer is always right. If the consumer tells us their lifestyle and cooking style have changed and their consumption is primarily made up of the ground product, then let’s provide it to them,” he says, noting that, from a production standpoint, this approach would broaden the spectrum. “Rather than everyone targeting for the conventional high-end market, this shift in mindset would offer a niche for the high-efficiency, low-cost commodity side of the business. That being said, the U.S. beef industry has an incredibly high-quality product and there will always be a market for the high-end beef.” 

Beyond consumer preference, the real challenge facing the beef industry is whether the producer is going to take advantage of the record high prices and sell or face the potential barriers ahead and bank on long-term industry growth. 

“Do I sell now while prices are high, or take an optimistic view on the future and end up paying up to restock my herd? This is a really tough dilemma for many of them,” Close says.

What does this mean for U.S. feed producers?

So, what does any of this mean for the cattle feed manufacturers? According to Close, who spoke at the American Feed Industry Association’s Liquid Feed Symposium in New Orleans in September, the economic indicators suggest it’s time for the industry to rebuild and repopulate their herds, so it lends a positive slant for feed sales moving forward. 

“However, if we’re feeding and designing an animal for a leaner point and for ground beef use, that requires a more forage-based diet with less energy concentration – yeah, it could mean some changes in what the end goal is with the animal,” he says. 

Close suggests that beef producers with animals on the lower end of the genetic spectrum accept the steer “for who he is, grow him efficiently and process him for the lean beef market” rather than overfeed the steer in an attempt to push it to a higher grade. 

With forecasts suggesting that the United States will be moving toward ample grain supplies, Close is bullish on the implications for cattle feeding and livestock production moving forward.

“If you look at agriculture as a whole – the expansion of the global markets and population growth curve – I’m more optimistic for agriculture than I have been in years,” Close says. 

For more information about the global beef trends, Rabobank’s Beef Quarterly Q3 report, released October 3, can be found here.