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Good news--a long time coming, or is it?

By Holly Martin

American cattlemen received news this week that they've been waiting nearly 10 years for: Beginning this week, Japan will accept U.S. beef and beef products under 30 months of age, instead of the previous 20-month age limit.

That's good news for the beef industry. Japan is already the nation's largest export market at $849 million. Before December 2003, Japan was the U.S. cattlemen's best customer, importing $1.1 billion worth of beef. Now, the announcement is expected to mean millions more to the industry.

The Japanese ban, and then later, tough restrictions came just hours after the United States announced it had its first case of bovine spongiform encephalopathy at end of 2003.

But as exports are expanding, production seems to be stalled. Cattle inventory went from 103.9 million in July 2003 to the most recent inventory of 97.8 million in July of last year. The 2012 number was the lowest all cattle and calves inventory for July 1 since the series began in 1973.

A number of factors have played into that number, but the drought is the most significant. Drought conditions continue to plague over 60 percent of the country, much of that area in the heart of cattle country. It seems simplistic, but when it doesn't rain, the grass doesn't grow. When there's no grass, cattle don't have anything to eat, unless you feed high-priced hay or grain.

During a tour of the JBS offices in Colorado this summer, the company's leadership worried out loud what might happen if current conditions persist. If lower supply continues, the infrastructure will begin to deteriorate, and then what? With fewer cattle, there will be fewer feed suppliers, fewer cattle truck haulers and fewer job opportunities in the industry. There will be too much bunk space in feedlots and too much idle time at processing facilities.

We're already beginning to see the effects.

Just a couple of weeks ago, Cargill announced it was suspending operations at its Plainview, Texas, plant leaving 2,000 employees without work. While the company isn't closing the facility permanently, one has to wonder what will happen should this low cattle inventory continue.

In a typical cattle cycle, when cattle prices get to the current level, the herd expands, bringing the cattle price back down. But that isn't happening this time--mainly because feed costs are too high. Even if something drastic happened today, it would take years to build inventories.

So while the news out of Japan is good, it is also concerning. Will the increased demand for U.S. beef drive prices up further? And if so, will it erode the beef industry's relationship with the U.S. consumer? Will beef become too expensive for the average consumer to put on their plate?

If consumers temporarily forgo beef as the center-of-the-plate protein, will it become a habit or simply a temporary fix?

As with any commodity, the industry is cyclical. It will rain again--although at this point, full ponds and green pastures seem like just a mirage. When it does, let's hope the transition is smooth--that the infrastructure isn't gone for good. And let's hope that the consumers will remember that beef is what's for dinner.

Holly Martin can be reached by phone at 1-800-452-7171 ext. 1806, or by email at hmartin@hpj.com.

Date: 2/4/2013



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