How COVID-19 Impacted Beef Markets In 2020

CME Group ·4 min read
By Jim Sullivan

One of the hallmarks of agricultural commodity markets is their tendency to have reliable seasonal price patterns each year. These patterns are important as they help to inform the decisions regarding the timing of both production and sales. However, when an event such as the COVID-19 pandemic hits, the resulting disruptions ripple throughout the supply chain and can disrupt seasonal patterns.

While there are eight different quality grades applied to beef, Choice is the most common quality grade as over 70 percent of all beef carcasses are graded with this designation. In a normal year, the market for U.S. Choice quality beef will see a seasonal run-up from the early spring through the beginning of summer. This period is often referred to as the “grilling” season. As the weather warms up and people utilize their barbecue grills, retailers market to strong seasonal demand for steaks and burgers. This contributes to prices rising from the typical lows in February to the highs in May. From May onward, beef prices tend to decline before seeing one last bounce in November heading into the holiday season.

Seasonal Price Index for USDA Choice Beef Cutout
Seasonal Price Index for USDA Choice Beef Cutout

Beef Pricing

The United States Department of Agriculture, or USDA, publishes its “National Daily Boxed Beef Cutout and Boxed Beef Cuts” report each afternoon. The report, also known as the XB403, is a comprehensive look at all beef transactions from meat packing firms regulated by the Livestock Mandatory Reporting Act.

When following the market for beef in the U.S., most will refer to the Choice “cutout” price that headlines the daily XB403 report. The boxed beef cutout is an estimate of the value of a beef carcass using the negotiated sale prices paid for cuts of beef.

2020 USDA Choice Cutout
2020 USDA Choice Cutout

Pandemic Response

As the COVID-19 pandemic began to adversely affect slaughter plants in Spring 2020, slaughter capacity was drastically reduced. This occurred just as the seasonal price rally for beef was about to occur. The abrupt reduction in slaughter capacity resulted in reduced beef production and provided additional volatility in prices.

The ten-year seasonal price index shows that May beef prices are typically about 105 percent of the average for the year.  The May 2020 price was significantly higher than the 2020 average price. At its peak, the Choice cutout notched a new all-time high of $475.39 on May 12, 2020. The May 2020 monthly average price of $420.17 equates to 175 percent of the average price for 2020 YTD.

U.S. Beef Consumption
U.S. Beef Consumption

U.S. beef consumption has started to move up in recent years after declining since the 1970s

Where’s The Beef?

Retail beef consumption peaked at over 90 pounds per capita in the 1970s. Since then, consumption has steadily decreased. It seemed to have bottomed out at 54 pounds per capita in 2015 and has been climbing upward since then. The Livestock Marketing and Information Center, or LMIC, forecasts 2020 per capita retail beef consumption to be just shy of 60 pounds. This increase is noteworthy considering how the pandemic closed many retail locations or forced them to change how they conduct business in the spring.

The uptick in consumption is also interesting considering the recent appearance of plant-based meat substitutes. The success and subsequent public listings of companies such as Beyond Meat and Impossible Foods has proven that these are more than just fads. However, as the LMIC data show, Americans are still increasing their consumption of beef. According to the market research firm The NPD Group, 89 percent of the people who said that they have consumed plant-based proteins do not claim to be vegetarian or vegan. So, while Americans may be incorporating new menu items, it appears to be in addition to beef.

The market for U.S. beef experienced unprecedented volatility and disruption in 2020. Despite this, producers and retailers still found ways for customers to get one of their favorite proteins, beef. As the world begins to normalize post pandemic, it will be interesting to see if beef prices return to their normal seasonal price patterns.

Via CME Group

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Jim Sullivan, Director of Commodity Research and Product Development, CME Group Jim Sullivan, Director of Commodity Research and Product Development, focuses on livestock and dairy markets as a member of the CME Agricultural team. Jim has been in the futures and derivatives industry since 2004 and was a trader before joining the Exchange in 2010. He is based in Chicago.