Beef demand so far in 2024 has been nothing short of amazing, bolstering the strong beef cattle prices that have benefited dairies. This is despite talk in the livestock and meat industry that, at some point, consumers will run out of spending capacity and beef will be the first to suffer the consequences.

While this sentiment may eventually ring true, there is little evidence that consumers are trading down from beef to lower priced pork and poultry items at the meat counter. Furthermore, comparisons of consumer spending levels by beef quality grade at the wholesale level show strong performance among all beef quality grades and branded beef as well as growth in the ungraded trimmings and ground beef category.

The Consumer Price Index (CPI) data for July 2024 was welcome news: it showed that inflation hit its slowest 12-month pace since March 2021. U.S. consumer prices in July rose 0.2% from a month earlier after declining for the first time in four years in June. I am hopeful that this news can begin to bolster confidence for consumers as well as at the Federal Reserve that inflation is cooling after surging in the first quarter. Interest rate cuts may be on the horizon.

We economists have worried for some time that growing credit card debt levels and substantially higher interest rates could put a damper on consumer spending. But continued growth in jobs, wages, and disposable income has boosted consumers’ ability to service debt.

Consumers still choosing fresh beef

We have heard from retail grocery analysts that some consumers have had to make hard choices regarding spending, but so far, they have chosen to trade down on center store items to maintain spending in the “fresh” departments. Additionally, younger consumers are choosing high-quality food items for the experience and are shopping for smaller quantities. I believe this is benefiting the beef segment, as these are likely customers who are choosing to prepare their own high-quality steak or beef entrée at home for the same cost or less as ordering it at a restaurant.

Grocery stores promoted middle-meat steak items for summer grilling, and featured steak prices were aggressive in some markets. Aggressive featuring has kept beef top of mind for consumers and driven sales across the category. Our measurement of real per capita expenditures for fresh beef has shown positive gains for every month this year.

Through July 2024, year-to-date fresh beef real per capita expenditures, which includes ground beef, was up 4.8% versus a year earlier (see below). Conversely, pork was down 1.5% and chicken fell 3.2%. The fresh beef demand index from January through May 2024 was up 3.9% versus a year earlier, while the pork index for the same period was down 1% and the chicken index declined 1.9%.

Strong 2024 nominal (not inflation-adjusted) consumer beef spending at both the retail and wholesale levels has supported prices across the beef supply chain and will likely complicate breeding decisions in the months to come for dairy producers.

Cattle price outlook

Beef cattle numbers continue to constrict at all levels, from cow-calf ranching operations to feedlots. Post-drought herd rebuilding has yet to begin in any significant way, and more drought looks to be on the way with a return to La Niña conditions. I expect beef supplies will continue to decline for the next two or three years, leaving cattle prices either well supported or very well supported.

The wild card will be how well demand can hold up. At this point, given the decisions consumers have made and the economic outlook, we don’t expect a big downward shift in demand in the near future.

I expect the growing need for more dairy replacement heifers in light of new or expanded dairy processing facilities and rallying springing heifer prices to favor using sexed semen on a greater percentage of the dairy cow herd. This would boost heifer numbers near term, and a couple of years later, it would lead to more first-calf springing heifers freshening and joining the milking string.

Offsetting this increase would be a near equal decline in the number of dairy-beef crosses that would be headed into the beef supply chain. I expect consumer demand for the highest grades of beef to remain strong, so it seems likely that dairy-beef calves will remain sought-after with their advantage on the percentage of cattle reaching the Prime and Upper 2/3 Choice grades.

I expect prices for day-olds through 700-pounders and fed cattle to keep pace with their all-beef breed brethren. As the prices for these dairy-beef crosses rally, that additional value could offset either some of the decline in head count being sold or some of the added cost and revenue reduction of producing more springing heifers.