The U.S. Cattle and Beef Industry
ECO 533/ Economics for Managerial Decision Making
June 7, 2006
The U.S. beef and cattle industry has historically played a critical role in fulfilling consumer beef demand domestically and abroad. Beef tenderness, juiciness, flavor, consistent quality, consumer health and nutrition, trust and product brand are all determinants of how consumers demand beef products (Beef Update, 2005). Beef consumption and prices were high in the 1980s, but prices fell by 30% in the 1990s. "The low point in the demand index occurred in 1998" (Beef Update, 2005), but prices once again started to rise steadily in early 2000. From 2002 to 2003 Americans consumed about 48 billion pounds of beef and the U.S. beef industry averaged about $68 billion in retail sales during the same period (Economic Research Service, 2005). Prior to 2004 the U.S. beef industry had averaged 2.5 billion pounds of beef in exports but one determinant caused the number to drop significantly to 551 million pounds in 2004. In November 2003, prior to the discovery of bovine spongiform encephalopathy BSE and the subsequent announcement by the Department of Agriculture, the average monthly price of American choice beef was $4.32/pound (USDA, 2005) One strategy used by beef producers to counter decreasing demand is price adjustment That is why the annual price for American choice beef in 2004, subsequent to BSE decreased to $4.07/pound and the numbers are even lower for the 1st Quarter of 2005, when prices were reported at $4/pound (Economic Resource Service, 2005). However, due to the elasticity of the beef industry, the decrease in consumers' demand due to BSE translated into an increase for substitute products. Consequentially, consumers' demand for poultry product, one of many substitutes of beef increased. The average wholesale price of broiler products (poultry) increased from 65.74 cents/pound to 76.7 cents/pound in 2004. The poultry...