January 7, 2005

 

 

US Beef Production Curbed Due To Huge Losses

 

Due to fading interest in high-protein diets and the loss of exports due to mad cow disease, US beef companies are racking up huge losses that are forcing them to cut production.

 

Tyson Foods Inc, the largest US meat company, said on Thursday that it will halt beef production at four plants and reduce output at another beginning next week.

 

Privately held National Beef Packing Co. LLC, the fourth-largest US beef company, also said on Thursday it was cutting production about 20 percent.

 

"It is domestic demand. It just isn't where it was two years ago when we were at the crest of the Atkins diet craze," said Ann Barnhardt, analyst with HedgersEdge.com, a livestock industry consulting firm.

 

Beef sales remain strong, but Barnhardt said they are not strong enough to cover what beef plants are paying for cattle -- $88 per hundred pounds this week. Cattle prices remain high in part due to tight supplies in the United States and the lack of imports from Canada.

 

Canadian cattle have been banned since May 2003, when that country reported its first case of mad cow disease. Beef plants in the northern United States had relied on Canadian cattle to fulfill some of their production needs.

 

The fading popularity of high-protein diets, such as the Atkins plan also contributed to the beef industry's losses.

 

"That has just taken the luster off of domestic beef demand," said Barnhardt.

 

HedgersEdge estimates operating margins for the beef industry and currently it shows beef plants on average are losing nearly $60 on each steer and heifer they slaughter.

 

"It hasn't been since 1991 and 1992 that margins have been at the level to cause plants to go dark on an ongoing basis," said Jim Robb, an agricultural economist with the Livestock Marketing Information Center.

 

While Robb agrees the high-protein-diet craze may be cooling, he blames the losses largely on the loss of exports, excess domestic production and a rise in beef imports.

 

Foreign countries banned US beef beginning in late December 2003, when the United States reported a case of mad cow disease. The United States was exporting about 10 percent of its beef before the discovery.

 

"We are not exporting, we are importing, and we are producing enough of it," said Robb, of the beef industry's difficulties.

 

In December, the US Agriculture Department estimated 2004 beef imports at 3.53 billion lbs, up nearly 18 percent from 2003, and projected 2005 imports at 3.66 billion, up nearly 4 percent from 2004.

 

Robb believes the beef industry's difficulties may continue for another two months. After that, beef demand should improve and cattle supplies should increase.

 

Canadian cattle could also be available to US plants if the US Agriculture Department succeeded with its plan to lift the ban on those cattle beginning March 7. At least one cattle group is contemplating filing suit to keep the ban in place.