That leads to concerns over the demand of beef, Murphy said to conference attendees on Feb. 8.

Compounding the problem for consumers is the growing worry over government’s burgeoning debt. Since the recession hit in 2008, consumers have started working to pay off their personal debts, while Washington, D.C. has been pushing for ways to maintain or even expand many spending programs.

“As we think about 2013, we don’t see any change with this,” Murphy said. “We’re going to be continuing to deleverage from a consumer perspective, but the federal government is going to continue to accept an allotment of debt.
“That’s not necessarily a positive situation from a demand standpoint in 2013.”

Energy consumption
A key expense for most consumers remains the volatility of energy costs, especially with oil. The entire globe is feeding that demand cycle, as more oil rigs are now working worldwide since 2007. The recession had a short-lived slowdown of oil demand then production and usage picked back up.

Now oil prices are escalating again. Murphy said it’s important to note that most U.S. consumers hit a resistance to paying more for gas, when it hits $4 a gallon. 

That trend has relevance for those who sell beef in today’s market “The consumer sent a signal that the price is too high and usage went down because of this,” Murphy said of the so-called ceiling to consumer prices. “This is something we have to watch closely as it relates to the beef sector.”

Rising tide for exports
Producers saw beef exports to global partners soften in 2012, after surging returns that were records in 2010 and 2011. Value was still a record in 2012, but the news that Japan will open its doors to U.S. beef that’s 30 months of age or less, is a huge market event for the year.

Murphy said that the policy change could move Japan ahead of Mexico as the largest trade destination for U.S. beef.
Supplies of global beef dropped for the sixth straight year, tightening the product’s availability.

Meanwhile demand is emerging even further in markets like India, China and “brick countries” that are discovering the health of protein diets.

“We’ve got to take prices high enough to ration that supply,” Murphy explained. “That’s what the market’s doing, not only for beef, but also for pork and poultry.”

Murphy said the argument can be made that beef is pulling other proteins into the higher price levels – and will continue to do so for markets.

U.S. beef remains higher priced than many countries’ products, which affirms the quality and power of the American product. Now with expanded access to Japan, that selling power could bring even more returns.

"It will be positive to the market sector in a sense that we will move more product to the system this year than we did in the year prior,” Murphy said. Benefits especially will be seen with variety meats, short ribs, short plates.

The Japan expansion offsets those trade obstacles seen with Russia and its trade barriers for U.S. beef. Growth areas are also predicted with Vietnam, while the U.S. will begin importing more product from Australia to feed its own consumer demand for grinds.

“We expect exports to be up 3 to 6 percent,” Murphy said of total trade volume, “with imports up somewhere between 12 and 15 pecent.”

PHOTO
CattleFax export and energy analyst Mike Murphy. Photo courtesy of Progressive Cattleman staff.