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Thursday April 26, 2018

Did pink slime really hurt beef demand?

As a potential billion-dollar defamation lawsuit quietly moves forward against ABC News over its March 2012 broadcasts that labeled ground-beef products by South Dakota-based Beef Products Inc. "pink slime," expert concensus contends the public-relations bruising to both that company and the beef industry as a whole cost a great deal in lost demand. Ad Age, for example, quoted celebrity supermarket know-it-all Phil Lempert's opinion that the media coverage had left the industry scrambling to get control of the message. "From a PR/advertising standpoint, this is the perfect storm," Lempert told Ad Age, "From a PR standpoint, very little can be done."  Brandchannel was nearly gloating in reporting the effect it believed the scandal had played on the entire beef-promotion structure.  "It’s been a rough couple years for the marketing initiative, which was established as part of the 1985 US Farm Bill," it said. "Between [the] ‘pink slime’ standoff and recalls for listeria contamination, selling a red meat patty these days isn’t as easy as it looks."

But how bad was the damage, really?

Purdue research published in the journal Food Policy now challenges the common notion of those like Lempert that bad press always necessarily hurts demand for food products. The researchers looked at overall demand for pork, chicken and turkey and for individual beef products in the USDA choice, prime and select grades, as well as ground beef, immediately after the pink-slime news broke. They plugged price and consumption patterns into a mathemetical model that accounted for the consumer's tendancy to switch product categories in response to changes in their preferences, and tested the theory that negative news coverage affected not only ground beef demand, but demand for other beef and aggregate meat categories, as well.

There's no question the negative word about lean finely textured beef got out, the researchers concluded. They constructed a weighted news media index that not only summed up the number of news articles from news transcripts, newspapers, magazines and journals, web news, video and radio per week, but went on to calculate an expected importance index, based on the percent of consumer readership for each of those news channels. Using the week of March 24, 2012, the week the pink-slime story first broke, they then created a news-impact index comparing the news that followed to that most-heated week using a range of zero to one.

But next, they matched price and consumption patterns against that media coverage index, to estimate the effects of media portrayal of LFTB on consumer demand. They found that media portrayal of LFTB did lead to significant changes in consumer demand across meats or within the beef category immediately. Consumer purchases of pork, turkey and USDA prime beef--which you might expect shoppers to choose over suspect ground beef--were affected for two weeks or greater after news reports of LFTB surfaced. Nevertheless, those effects were temporary and waned or disappeared shortly after. Even more surprising, they found media coverage did not significantly impact consumer demand for ground beef, which consists of LFTB. Consumers may have responded quickly and initially to the food scare by making changes to their meat and beef consumption, but their response didn't last long.

The Purdue work notes a similar pattern occurred in response to negative publicity regarding BSE, which the press called "mad cow disease." For example, a USDA report used food purchase records from the Nielsen Homescan panel and showed that while beef purchases declined initially, there was no evidence of response beyond two weeks after the BSE announcements. Other studies from that period confirmed the same: Consumers react quickly in response to media announcements of food scares, but those reactions are short-lived.

The lesson to be learned? Pay attention to your "industry infrastructure," says Kevin Murphy, founder of Food-Chain Communications, a Missouri company specializing in communicating up and down the food chain. The industry infrastructure is composed of all influencers who can potentially impact your brand by telling others about it. ABC's negative coverage of LFTB may not have hurt overall beef demand, but it nearly devastated the product's inventor, costing the company an estimated $1.2 billion and 700 jobs. During March 2012, 70 percent of ground beef included LFTB. However, that number dropped to 5 percent by March 2013.

That damage occurred because a handfull of key customers succumbed to panic and abandoned BPI, Murphy notes--even as consumers were apparently absorbing the news and dealing with it. Had preventive communication been applied to help those key customers communicate a reassuring story to their customers within the infrastructure, BPI may have succeeded in riding out the only temporary impact on demand the Purdue researchers confirmed was only fleeting.

Where are holiday meat supplies headed?

Hams. USDA reports the U.S. pork sector appears to be fully back on its feet following losses last year from the disease Porcine Epidemic Diarrhea, which took out a large portion of young pigs. Pork supplies are expected to finish 2015 with year-over-year production gains of 7.3 percent, which is 5.7 percent higher than even 2013's production, before pig farms began feeling the effects of the disease. Fourth quarter commercial pork production is expected to be 6.5 billion pounds, 5.4 percent greater than the same period a year ago. That supply increase will hold prices down from 5 percent to 10 percent compared to the average for 2015 as a whole. For the first half of 2016, USDA expects production to be nearly equal to the first half of 2015, at 12.1 billion pounds, holding off any price increases until at least second quarter.

Turkey. U.S. turkey meat production in third-quarter 2015 was down 9 percent from a year earlier, at 1.35 billion pounds. That lower production combined with already lower stocks boosted wholesale prices for whole hen turkeys 17 percent above the previous year's level at this time, to $1.36 in October. September turkey shipments decreased 38 percent from a year ago, totaling just 43 million pounds. Since April, the average weight of birds at slaughter has been lower than the previous year, for a period of 6 consecutive months—reflecting the impact of bird flu in spring which caused processors to slaughter birds earlier than they normally would in order to maintain supply levels. Turkey meat production in fourth-quarter 2015 is forecast to total 1.4 billion pound, which would be 8 percent lower than in fourth-quarter 2014. This decrease is expected to come from both a smaller number of turkeys slaughtered and a decrease in the average live weight per bird at slaughter. Production in 2016 is forecast at 6 billion pounds, which would be an increase of 8 percent from year; however much of the increase won't be here until holiday season 2016.

Lamb. A marked reduction in the number of lambs and sheep coming through the slaughter chain in 2015 relative to last year leads USDA to predict third-quarter 2015 commercial lamb and mutton production will be down nearly 3 percent from the same period in 2014, at 37 million pounds. Unlike in 2014, most slaughter lamb market prices thus far in 2015 have been below the 3-year average, despite this tighter supply. USDA theorizes the increasing strength in slaughter lamb prices is likely due to greater demand and an infusion of younger market-ready higher quality lambs. Imports of lamb and mutton remain strong despite record stocks in cold storage. Based on the NASS Cold Storage report, September 2015 beginning stocks for lamb and mutton were roughly 4 percent higher than this time last year, at 41.9 million pounds.

Change in meat supplies this year over last

Oh where, oh where has the cattle herd gone?

Two recent USDA reports illustrate the good news/bad news aspect of current U.S. beef cattle markets. The survey data confirm the good news that American cattle farmers are actively expanding the beef-cattle herd, which will eventually lead to greater beef supplies and more moderate prices as a result. The bad news: That rebuilding process is going to be long and slow, at least to start.

Supplies are still tight. USDA's July Cattle report contained USDA’s first estimate of the 2015 calf crop and it came in 1.2 percent higher than that of 2014, at 34.3 million head. If the estimate is true, 2015 will be the first year the calf crop has grown by 1 percent or more in more than two decades, according to Iowa State ag economists Chad Hart and Lee Schulz. Young female cattle now make up 16.1 percent of the total U.S. cow herd--another 20-year high mark--which means cattle ranchers are now holding females off the market at a rate consistent with levels during the large expansionary phase of the early 1990s, diverting them into producing more calves down the road, but temporarily cutting into the beef supply as they do so.

Heifers are being held to spur expansion

We have a long way to go to recover from the lost numbers brought on by continued drought during the last decade. The number of "feeder calves," those ready to go onto the final phase of feeding before being marketed as beef, are still tight. Feeder cattle supplies have been within the range of 34.87 and 35.50 million for the past four years, and that 35.25 million average of those four years still falls 8.4 percent lower than the average for 2004 through 2010—the last years in which we saw what they consider an overall increase in feeder cattle supplies.

Feeder cattle supplies are still tight

Much of that year-over-year increase in feeder cattle supplies is being fed by a relatively larger increase in the number of light calves, those under 500 pounds. What that statistic means is that even though the overall supply of calves available to put on feed is increasing, the majority of those are those light calves, which won't be big enough to go into feedlots until late in the year and into next year. So don't expect any significant impact on beef supplies to appear until 2016. Beef cattle inventories are increasing right now, but the supply of beef will actually fall another 1 percent or 2 percent in 2015 following the 5.7 percent year over year decrease in 2014. That adds up to sustained high wholesale prices for the near future.

How to keep customers grilling into fall

Summer has ended, but that doesn't mean the grilling season has to. Here are five ways to extend the grilling season and the high-margin commodity sales that accompany it:

Believe it. Retailers themselves may fall into habit of respecting season over consumer preference when they automatically abandon grilling features once the traditional three-month summer window closes. But they do so at their risk. According to CPG sales and marketing agency Acosta, more than six in 10 surveyed shoppers grill at least eight months out of the year, and nearly one in four grill year-round. Thirty-nine percent of all U.S. shoppers say they used a grill for meal preparation in the past six months, Acosta shows.

Promote it. That extended grilling season means extended opportunity for promoting grillable sales and educating shoppers on unique applications, says Acosta's Marianne Quinlan-Sacksteder. “Grilling is popular as a year-round cooking method, so food manufacturers and retailers can promote grilling items in the spring, fall and winter – beyond the traditional Memorial Day to Labor Day timeframe – and still drive sales,” she urges.

Respect it. "A person could even argue that autumn’s eating is better: It is the harvest season, for crying out loud," Washington Post food columnist Jim Shahin wrote in a glorification of fall grilling. "Before we started trucking and flying everything from everywhere, obliterating seasons, the natural foods of autumn were cabbage, potatoes, onions, beets, Brussels sprouts, eggplant, garlic (yes, garlic), Hatch chilies, potatoes, all sorts of squashes and tomatillos, not to mention apples and pears. They take to a little fire and smoke just as those summer gems do," he writes.

That appeal to the tradition of fall outdoor cooking and smoking opens numerous opportunities for the retailer. Burgers still top Acosta's list with 80 percent of grillers cooking these in the last six months. Chicken came in second with 77 percent, followed by beef steak and hotdogs or sausages, which 66 percent of US grillers cook. Acosta notes that as Millennial dads shoulder more of the shopping role traditionally held by women in the household, grilling moves forward in cooking method preference, as a greater proportion of men than women choose to grill over other methods.

Adapt it. Meahwhile, Acosta's survey also found Americans are branching out and grilling more non-traditional fare, like seafood, at 31 percent; vegetables, at 46 percent; and fruit, at 10 percent. Adding warmer fall tastes to traditional fare can adapt the summer meal to the cool autumn by adding chutneys and salsas, for example--two additions that benefit from the added flavor of the grill. Even pizza, which not only benefits in flavor from grilling but becomes a communal event around the hearth. Adaptation also applies beyond food choices to venue, too: Think Thanksgiving meal preparation and tailgating opportunities brought on by football season's beginning and baseball's post-season.

Spice it up. The cooler evenings of fall invite the opportunity to try something different on the grill from duck to ham. Citrus slices on top, liquor-based marinades and low smokey heat over flavored wood chips can all spice up grill staples with some drama. The Washington Post's Shahin, for instance, suggests wood-smoked poached pears in red wine, orange and vanilla syrup or smoky green apple salsa verde.

Egg outlook unclear

USDA reports that driven by the decrease in the number of layers in the table egg flock, primarily in Iowa, due to the avian flu outbreak, total U.S. table egg production dropped 7 percent in May to 571 million dozen. During May, the number of hens in the table egg laying flock averaged 283 million, down 7 percent from a year earlier. The strong decline in May has caused the forecast for second-quarter 2015 to be reduced by 15 million dozen to 1.7 billion dozen, down almost 6 percent from the previous year. Year-over-year table egg production is forecast to be lower than the previous year during the second half of 2015 and into the first quarter of 2016, reflecting the time needed to get replacement pullets to repopulate farms and into production.

The size of the table egg flock was reduced by the impact of the HPAI outbreak, but since the broiler sector has not been significantly impacted, the size of the hatching egg flock and egg production have remained above the previous year. In May, hatching egg production totaled 95 million dozen, 4 percent higher than a year earlier. With this strong increase, the forecast for second-quarter hatching egg production was raised to 280 million dozen. Broiler-type egg production dominates this sector of the industry, and hatching egg production is forecast to remain above the previous year throughout 2015 and through the first half of 2016 as the broiler industry expands. Wholesale prices for grade A large eggs in the New York market averaged $1.70 per dozen in second-quarter 2015, up 27 percent from the previous year. Over the last 2 weeks of June and carrying over into the beginning of July, wholesale egg prices had been steady at $1.89 per dozen, but have moved higher in recent days. Lower table egg production during the second half of 2015 is expected to keep upward pressure on prices, and the forecast is for wholesale prices in the New York market to remain well above year-earlier levels.

Total egg exports (shell eggs and egg products) reached the shell egg equivalent of 26 million dozen in May, 16 percent lower than in the previous year. The decline was primarily due to a sharp decrease in exports to Mexico. Shipments to Mexico were 34 percent lower in May compared with a year earlier. Egg exports in 2015 are now expected to total 364 million dozen. The forecast for 2016 exports remains at 385 million dozen.

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