August 13, 2004

Beef Demand Growth Called Key To US Cattle Industry

Phenomenal growth in beef demand since 1998 was called Wednesday "the real story" for the U.S. beef industry, helping to absorb rising supplies at higher prices and providing an outlook for continued profitability throughout the industry, especially at the cow/calf level.
 
Randy Blach, executive vice president of Cattle-Fax, a private market advisory firm, made the statement to reporters at the annual midyear meeting of the National Cattlemen's Beef Association.
 
Strong demand for U.S. beef from January through June was worth about $7.00 more per hundredweight to fed cattle prices over the first half of 2003 than had demand stayed the same, Blach said. The market could be seeing some seasonal price resistance from consumers in the second half, but it is too soon to tell.
 
Given the level of demand for U.S. beef, fed cattle prices would be nearly $10.00 per hundredweight higher currently if foreign trade were normalized, Blach said. This normalization would include open cattle and beef trade with Canada, along with renewed export markets to Japan and South Korea.
 
This means U.S. export beef markets are worth $175.00 a head for fed cattle, Blach said.
 
Over the last five years, U.S. beef exports averaged about 2.5 billion pounds a year, he said. However, this year, exports may total only about 600 million pounds, now that about 20% of its markets have reopened.
 
The door to U.S. exports slammed shut Dec. 23 when the U.S. Department of Agriculture announced its first case of bovine spongiform encephalopathy, or mad-cow disease. Since then, some markets, such as Mexico, have reopened their borders to certain cuts of U.S. beef.
 
Because of the lost export markets, net U.S. beef supply for 2004 is up 700 million pounds at a time when domestic production is down 1.5 billion pounds, or about 9%, and beef imports may be up 6% to 7% from last year, Blach said.
 
Because of record profits at the cow/calf level of the beef industry, Blach expects eight years of herd liquidation to reverse this year. This could restrict feeder cattle supplies and further enhance profits for cow/calf producers as they hold back a few more heifers to turn into cows.
 
Blach said he expected the industry to respond to tighter feeder cattle supplies by importing about 200,000 more head from Mexico this year, bringing the annual total to about 1.3 million.
 
But whatever the future holds, a vital part of maintaining profitability will be sustaining beef demand, Blach said. He expects foreign trade to resume eventually, but his projections are based on them remaining closed for the rest of this year.