May 12, 2005

 

US beef supplies remain tight

 

 

According to a USDA Economic Research Service (ERS) report released on April 15, tightness in the US beef supplies continue to persist due to several conditions. Poor feeding conditions during the winter months, the prolonged closing of the Canadian border, because of BSE, have pushed first quarter cattle prices to a new record high.

 

The poor rate of gains in the feedlots, coupled with heifer and cow retention suppressed beef production by two percent from the low levels of a year ago and down almost nine percent from the first quarter of 2003, the report said.

 

Steer and heifer slaughter fell over three percent, while cow slaughter declined nearly six percent. Commercial slaughter weights were record high last fall, but are going to average about three pounds under the 2002 record of 758 pounds dressed weight during the first quarter. In both years, cow slaughter comprised 16.3 to 16.5 percent of commercial slaughter. Commercial dressed weights are up about 14 pounds from the low levels last year.

 

The report also pointed out that the female retention phase of the cattle cycle is holding down cow slaughter and feeder cattle supplies remain very tight with last year's calf crop down nearly one percent from a year earlier and the lowest since 1951. With reduced cow slaughter and three percent more beef heifers expected to calve this year, the calf crop is expected to begin a cyclical rise, but the rise starts at a decades low level, which will continue to hold down beef supplies through at least 2007.

 

According to the ERS, once the Canadian border is opened to beef imports, that additional beef will be assimilated within a year of the border's fully opening, and the US will still be in the initial stages of herd expansion. It is estimated that both countries will have more feedlot and slaughter capacity than cattle and both sectors will compete strongly for the available inventory.

 

Beef production during the second quarter is expected to increase due to improved feeding conditions and an increase in fed cattle marketings. However, the ERS expects cattle prices to continue at their record level, at least for a while. The unexpected supply tightness and strong beef demand has forced the end-user market to compete fiercely to meet forward commitments.

 

The report notes that beef supplies will remain very tight and prices high until feeder cattle supplies increase from either Canadian imports or the cyclical expansion of the US beef herd.

 

For the year, fed cattle prices are expected to average slightly above 2004's average price of $84.75 per hundredweight (cwt), with prices averaging in the upper $80s in the first half of the year and the lower $80s in the second half. Likewise, feeder cattle prices are expected to reach the second highest average to 2004's record $104.76 per cwt. Utility cow prices will remain on a record-setting pace with cyclically low cow slaughter and tight world beef supplies. Utility cow prices are expected to average in the mid-$50s.

 

Retail beef supplies are also expected to rise with the continued tight supplies. Prices for Choice beef averaged around $4.08 at the start of the year and had risen to $4.13 in February. Retail prices are expected to rise seasonally through spring. In 2001 and 2002 retail beef prices were about 25 percent above pork prices; in 2003, with the Canadian border closing, the ratio moved up to 40 percent and in 2004 and so far in 2005, the ration has risen to 45 percent. The increasing beef price and uncertain supply situation is making both pork and broiler meat more attractive to the consumers.

 

Beef demand and prices remain strong, the report said, but relatively lower prices for competing meats will force adjustments as consumers turn to competing meats at more consistent supply levels and lower relative prices.

 

World supplies of beef remain tight as well, according to the ERS report. Once the world markets are reopened a major realignment will occur, but reclaiming these markets, even with high-quality fed beef from Canada and the US will not occur very rapidly, because of current high prices.