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Where's the beef?
By Seymour Klierly
Beef prices have managed to more than recover from their brief dip after the discovery of BSE in Washington state late last year. Despite the subsequent loss of major overseas markets, including Japan, U.S. domestic beef consumption remains strong--aided in part by a boost from recent popular diets that favor protein over carbohydrates. The cessation of movement of livestock and beef products from Canada into the United States after their discovery of bovine spongiform encephalopathy there has also further limited supplies and help drive the upward trend in cattle prices.
For the past eight years, the domestic supply of cattle has steadily decreased. Drought, other adverse weather conditions, increased exports pre-BSE, and increased demand for beef products are all factors that have converged to put upward pressure on beef prices. As prices for cattle have risen, so has the incentive for cattle producers to sell their livestock. During last year's spike in live cattle prices, many producers pushed cattle to market earlier than normal.
The rise in retail prices for beef products has affected the pocket of some cost-conscious consumers to the point that they have phoned their congressmen and senators to complain. Meanwhile, the major cattle organizations have pressed the U.S. Department of Agriculture to pursue steps that will further limit the domestic supply of beef and hence, raise prices.
USDA is presently negotiating with Japan to reopen that lucrative export market for U.S. beef. While progress has been slow, recent developments indicate that Japan may be more flexible on some of its previous demands, including 100 percent testing of all animals for export. The resumption of beef exports to demand will put further pressure on the U.S. price for beef--a prospect that has U.S. cattle producers excited.
Several organizations are also pressing USDA to forestall any action on the resumption in the live cattle trade with Canada. USDA is in the process of developing a rule for the resumption of the livestock trade with Canada. However, one producer organization, R-CALF United Stockgrowers of America, has successfully taken USDA to court, blocking any near term action to reopen the border with Canada. With a six-month or longer delay before any decision is taken by USDA regarding livestock trade with our northern neighbors, live cattle and processed beef from Canada remains unavailable to U.S. processors and consumers.
While U.S. cattle producers have undoubtedly benefited from the stoppage of cattle crossing into the U.S. from Canada, other participants in the U.S. livestock industry have not faired as well. The scarcity of available livestock for processing has forced at least one packer, Iowa Quality Beef LLC, to shutter its facility and lay off 540 employees. Processors, operating on a small margin, depend upon a constant supply to cash-flow. Some small to medium sized processors, who rely upon beef sourced from both the U.S. and Canada, are also affected by the lack of cattle to process.
The supply of U.S. beef continues to tighten forcing processors, retailers and consumers alike to continue to adjust to a leaner market. The answer to several questions will determine what the domestic cattle industry and the global market for beef will look like, post-BSE discovery in North America. Will continued strong domestic demand cause U.S. producers to increase their herd size? Will the continued short supply force more small and medium sized packers out of the market? Will the decision regarding Canada be decided by the courts or the USDA? Will U.S. producers be able to provide both Japan and the U.S. with a consistent supply of quality beef that consumers in both countries expect should exports to Japan resume?
Until then, the most familiar question likely asked may be: "Where's the beef?"
Date: 8/25/04
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