Aug. 3, 2020
Beef demand and macroeconomics
By Derrell S. Peel, Oklahoma State University Extension livestock marketing specialist
The U.S. economy was wracked like never before in the first half of the year. The Bureau of Economic Analysis (BEA) released preliminary estimates showing that U.S. Gross Domestic Product (GDP) declined by an unprecedented 32.9% year over year in the second quarter of 2020. This follows a 5% first quarter decrease compared to last year. This highlights questions about the impact of the pandemic on beef demand in the first half of the year and, more importantly, beef demand for the remainder of the year.
The first half of 2020 was a confusing mix of beef demand and supply dynamics, complicated by dramatic disruption of beef supply chains. Overall beef demand was difficult to judge accurately as surging retail grocery demand was offset by sharply diminished food service demand and all obscured by temporary supply shortages that reduced overall beef availability. Record overall wholesale and retail beef prices masked a variety of impacts in various beef product markets related to the type of demand for the product and the ability to shift product from food service to retail grocery supply chains.
Beef supply conditions have stabilized, albeit at higher levels of production year over year in the second half of 2020. Beef demand will be critical in determining overall beef prices and, subsequently, cattle prices going forward. Beef demand, as for any product, is generally a function of consumers’ willingness and ability to purchase specific quantities of the product at various prices of the product.
Willingness to purchase beef consists of a couple of components. Underlying consumer preferences determine overall demand for beef. Tastes and preferences tend to be relatively stable, evolving over longer periods and generally appear strong, i.e. beef is popular. In the short run, willingness to purchase beef will depend on the relative prices of other products, particularly substitute products that may be consumed in place of a particular product.
For specific beef products, this is a complicated consideration, including other proteins such as pork and poultry, as well as the multitude of other beef products that may be chosen by consumers. In periods of low income, beef consumers may “trade down” from high cost beef products to lower valued products. Food service demand, which remains diminished, will emphasize this impact going forward.
Ability to purchase a product is related to the level of consumers’ discretionary income. Consumers must have income to purchase a product regardless of how much they desire the product. Generally, macroeconomic conditions including overall GDP levels along with unemployment are indicative of income levels. The U.S. economy is in recession and will be for the balance of the year and likely into next year. Unemployment peaked at 14.7% in April before declining to 11.1% in June. Unemployment is expected to decline but will remain elevated in the second half of the year.
GDP is projected to be lower for the remainder of the year with annual estimates down in a range of 6.5 to 8.0% year over year. In the first half of the year, the dramatic drop in GDP and increase in unemployment did not correspond directly to similar beef demand impacts because federal stimulus and unemployment benefits partially offset direct negative economic impacts on consumers. Macroeconomic conditions — as well as the status of economic support — will play a key role in overall beef demand going forward.
Growing bred replacement heifers
By Glenn Selk, Oklahoma State University Emeritus Extension animal scientist
Bred replacement heifers that will calve in late January and February need to continue to grow and maintain body condition. Ideally, two-year-old heifers should be in a body condition score six at the time that their first calf is born.
See example of a two-year-old in body condition score six below.
This allows them the best opportunity to provide adequate colostrum to the baby, repair the reproductive tract, return to heat cycles, rebreed on time for next year, and continue normal body growth. From now until calving time, the heifers will need to be gaining one to 1 1/2 pounds per head, per day, assuming that they are in good body condition coming out of summer.
Pregnant replacement heifers will need supplemental protein, if the major source of forage in the diet is bermudagrass or native pasture or grass hay. If the forage source is adequate in quantity and average in quality (6 – 9% crude protein), heifers will need about two to 2.5 pounds of a high protein (38 – 44% CP) supplement each day. This will probably need to be increased with higher quality hay (such as alfalfa) or additional energy feed (20% range cubes) as winter weather adds additional nutrient requirements.
For more details about the nutrient needs of all classes of beef cattle download and read Oklahoma State University Extension Circular E-974 Nutrient Requirements of Beef Cattle.
Wheat pasture (if adequate rainfall produces growth) can be used as a supplement for pregnant replacement heifers. Using wheat pasture judiciously makes sense for pregnant heifers for two reasons:
Pregnant heifers consuming full feed of wheat pasture will gain at about three pounds per head, per day. If they are on the wheat too long the heifers can become very fat and may cause dystocia (calving difficulty).
Also, the wheat pasture can be used for gain of stocker cattle or weaned replacement heifers more efficiently. If wheat pasture is used for bred heifers, use it as a protein supplement by allowing the heifers access to the wheat pasture on at least alternate days. Some producers report that one day on wheat pasture and two days on native or bermuda will work better. This encourages the heifers to go rustle in the warm season pasture for the second day, rather than just stand by the gate waiting to be turned back in to the wheat.
Whatever method is used to grow the pregnant replacement heifers, plan to have them in good body condition (BCS=six) by calving so that they will grow into fully-developed productive cows.