US beef sector faces liquidation risk

The US beef industry may liquidate its cattle herd next year to better balance supply and demand, as the industry suffers from poor demand and weak prices.

The beef cow herd will need to be reduced next year unless there is substantial growth in beef demand either in the domestic or export market, according to agricultural economists Glenn Grimes and Ron Plain.

Beef prices have not adhered to traditional economics, and red meat prices are still generally lower than year-ago levels despite significant reductions in US meat supplies over the past year, said livestock analysts Steve Meyer and Len Steiner.

As of June 5, beef production for the week fell 2.5 percent, but fed steer prices were still nearly 13-percent below year-ago levels, said Meyer and Steiner.

Wholesale beef prices as of late last week, showed Choice beef at US$138.53 per cwt, down US$6.16 per cwt from a week ago, while select beef was US$5.56 lower than a week earlier, said Grimes and Plain.

Significantly lower wholesale beef prices have limited the packer's ability to pay for cattle, Meyer and Steiner said.

Meanwhile, the value of offal has declined largely due to a drop in export demand. Weak cattle prices are impacting cow-calf producers, feeder cattle prices have declined amid rising feed costs and weak out-front fed cattle pricing, and beef cow slaughter is lower than year-ago levels.

If cow-calf producers continue to lose money, another wave of liquidation will start this autumn, the analysts said.