Story first appeared in the Wall Street Journal
Here's food for thought: Despite being fed a steady diet of conflicting news about the global economy, consumers around the world are still tucking into pricey steaks and juicy pork chops with gusto.
U.S. exports of beef and pork are on pace to set records this year, and domestic demand is rebounding with surprising strength, indicating that slower growth world-wide and high unemployment at home haven't choked off appetites for some everyday luxuries.
Those consumer cravings have helped keep livestock futures consistently high this year, even as other commodities' prices have swung wildly. They have also pushed up domestic retail prices for many beef and pork products in recent years. The average price for sliced bacon in September was $4.82 a pound, up 34% from two years earlier, while uncooked beef roasts cost $4.52 a pound, up 15% over the same period, according to government figures.
Live cattle prices are up 13% this year in Chicago futures trading, making cattle among the few widely traded commodities besides gold to be up by double digits. Lean hogs futures are up 9% this year. Both meat contracts also jumped in 2010, climbing 26% and 22%, respectively.
Among U.S. consumers, the appetite for nicer cuts seems particularly strong. In recent months, the difference has widened between prices for choice cuts of beef typically sold in restaurants and for less costly select beef, which usually is purchased in supermarkets, says Glynn Tonsor, an assistant professor of agricultural economics at Kansas State University.
The booming prices are providing an added boost to pocketbooks in rural America, which has also been benefiting from higher crop prices and soaring land values. For livestock producers, the rally is also offsetting the cost of animal feed, given big spikes in corn and soybeans last year.
Longer term, some see more price pressures. A harsh drought in the southern plains has driven ranchers to send more cattle to slaughter, according to the U.S. Department of Agriculture. While that is adding to the supply of beef right now, it is likely to create a dearth of supply down the road. With fewer cows to bear calves, beef production is likely to be curtailed. And it takes some three years to raise cattle for slaughter, creating upward pressure on prices in the meantime.
With exports booming and prices climbing, U.S. pork production is forecast to rise 2% next year, according to the USDA.
At the moment, expensive meat isn't sending customers fleeing. The U.S. had shipped nearly 1.9 billion pounds of beef and veal abroad this year through August, almost as much as in all of 2009.
U.S. beef exports are on track to top the all-time high of 2.5 billion pounds set in 2003 by roughly 10%, according to the USDA.
Pork exports also are poised to top the 2008 record of 4.7 billion pounds. Through August, the U.S. had already sent more pork abroad, 3.3 billion pounds, than in 2007, and twice as much as in 2002.
The trade has gotten a significant boost from a cheaper dollar, which has made U.S. meat cheaper abroad, particularly among major customers in Asia, where faster-growing economies are making people wealthier and more inclined to add costly protein to their diets.
An outbreak of foot-and-mouth disease in South Korea, America's fourth-largest beef customer in 2010, is also driving U.S. beef purchases higher. Through August, South Korea had imported 277 million pounds of U.S. beef, a hair under its total for all of last year, according to USDA data.
Disease, however, can also curtail U.S. exports, which is what happened in 2004 after an outbreak of bovine spongiform encephalopathy, known as mad-cow disease. Exports plunged 82% from the 2003 record and have taken years to recover.
The Obama administration is lobbying Japan to ease restrictions it still has on U.S. beef due to the outbreak, and the chief agricultural negotiator for the U.S. trade representative was in China recently, pushing China to allow U.S. beef.
Americans are expected to consume less beef per capita this year than last, according to USDA figures. But Kansas State's Mr. Tonsor compiles an index of U.S. beef demand that weighs consumption and prices, and it has risen for five consecutive quarters on a year-over-year basis, through the third quarter. A similar pork index is up four quarters in a row, he says.
