October 7, 2003

 

 

The Increase Demand of Beef Leads to Flourish of Cattle Industry

 

Beef is back in style - at least that is what the highest prices of live cattle in the past decade represent.


For rancher Mike Risica, the past 15 years in business have never been so profitable as it is now. He is president of the 450-acre Rio Beef Feed Yard in Linn-San Manuel in Hidalgo County.


"Demand has just increased where we're getting more for our product," Risica said. "This is an all-time high. The profitability is huge right now."


It was only about 18 months ago that the price for cattle from a feedyard was about 60 cents per pound. Now it sells between 70 and 90 cents, said Matt Brockman executive vice president of Texas and Southwestern Cattle Raisers Association in Fort Worth.


"The market just kind of caught on fire and hit these high levels," he said. "I think it's attributable to several factors both on the supply and demand side."


Risica said ranchers could now earn much more of an animal from feedlots, which feed livestock to about 700 pounds in preparation for slaughter.


The high prices can be attributed to many factors, including the ban on bringing Canadian cattle and beef into the United States. In May 2003, a case of bovine spongiform encephalopathy, or mad cow disease, was detected in a cow in the Alberta province. This led to a shutdown of the U.S. border to Canadian products. Japan, Australia, New Zealand, Taiwan and South Korea also banned Canadian products.


Although the United States lifted a part of the ban in early August, still no Canadian cattle are allowed to cross the border. However, boneless Canadian meat under the age of 30 months, veal from calves 36 weeks or younger at slaughter and boneless sheep or goat meat from animals 12 months of age can be accepted into the United States. Fresh or frozen beef liver, vaccines for veterinary medicine and some pet products and feed ingredients can also be accepted.


Mexico said last Wednesday that it would also lift the ban to only accept Canadian beef from cattle less than 30 months old. Mexico is the largest customer of U.S. beef, based on the amounts of tons imported, but Japan purchases more U.S. beef based on dollar amount.


When the Canadian ban went into effect, imports were down and exports were up, said Dr. Ernest Davis, professor of agricultural economics at Texas A&M University - College Station. With this ban, the United States lost almost 12 percent of its imported beef product, Davis said.


"We lost that big customer that sends us that much," he said.


But on another side, the United States began to pick up the extra customers from Canada; driving U.S. prices on live cattle per pound higher.


The higher prices are also reflective of the supply and demand market for beef products. Davis said there is about a 2% increase in the demand for beef in the past year, but the supply is smaller - thus driving prices higher, as well.


The supply of cattle began to decrease in the mid 1990s, mostly in Texas due to a drought, Davis said. Many ranchers had to liquidate the cow supply.


"Demand goes up for beef so when demand for beef goes up, you need more cattle to slaughter and the cattle numbers are not there to meet demand," Risica said. "The demand is there and the supply is not."


Part of the increased demand is due to more people just wanting to eat more beef, said Richard Wortham, executive vice president of the Texas Beef Council in Austin. More than $80 million has been invested in the areas of beef promotion, education and research.

 

"We've helped to modernize our product offerings of beef," he said. Wortham said beef is now user-friendlier, meaning consumers can now cook beef in a microwave at ease.


"A lot of consumers do not understand how to cook beef," he said. "But they know how to use a microwave."


Also, he said consumers are now discovering the nutritional value of beef because of promotion and advertising, he said.


"Beef is one of the most nutrient-rich foods," Wortham said.


"Beef is on its way back and I think a lot of it has to do with the modernization of the product and giving consumers what they want," he said.


However, with prices of cattle going up, prices for the consumer will most likely go up too. Restaurants and retail stores may soon be raising prices.


"I would think somewhere in the future (this would happen)," Wortham said.


If the economy continues to stay weak, people may switch to another meats like pork, chicken or lamb, he said.


Risica said the situation is positive now, but it is impossible to say what will come in the future for the prices in the cattle industry.


During the 70s, the demand was much lower and it slowly picks up its popularisation, said Brockman, of the Texas and Southwestern Cattle Raisers Association. Through the years, many herders had to sell off their cattle and hopefully; he said this price surge would return some of the equity or assets to individual operations to rebuild a herd.


"The industry has went through an extended time of falling demand," Brockman said. "We all want to see this trend continue."
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