Easing recession may improve US beef demand

If US consumers are willing to buy more cars, it is an indication that the recession is easing, and they are likely to transfer more of their expenses to beef, according to Chris Hurt, an economist from the University of Illinois.

The recession has deeply affected beef demand, which in turn pressurised cattle prices and cut into the pockets of cattle producers. Beef production has decreased three percent so far this year, while finished cattle prices have plunged 10 percent, said Hurt.

But retailers were slow in reflecting the low farm level prices and consumers had to pay more for beef in the first half of 2009, Hurt said. By June, however, retailers finally lowered prices to below year-ago levels, a move that should help increase purchases and restore farm prices.

While demand retreated in the domestic market, imports during the first five months of 2009 grew 12 percent compared with a three-percent increase of exports. More imports than exports means beef supply in the US have increased by nearly one percent, Hurt said.

Cheap cattle and high feed prices have discouraged cattle feeders, and the number of cattle on-feed at the start of July has declined five percent.

Hurt said cattle prices are likely to increase soon for several reasons. Finished cattle prices tend to move upward as the weather cools late in the summer, and the falling retail prices will encourage more consumption. Hurt said cattle slaughter will remain moderate with small supplies coming out of feedlots this autumn. Pork and poultry supplies are expected to drop three percent in the second half of 2009, while the general economy is starting to improve which may inspire consumers to start buying beef again.

Hurt said finished steer prices are expected to increase into the late summer, and if the general economy continues to improve into the spring of 2010 as expected, prices could rise to the low-to-mid US$90s.

Hurt said while the worst is over, but the cattle industry will be slow to recover as losses have accumulated and it will take until spring of 2010 when profits would start coming in again.