DENVER, Colo. – Shock waves from the Asian financial crisis are shaking American beef producers.
As Asians see their currencies devalue, their ability to buy American beef shrinks. This is lowering beef prices by $3 per hundredweight, Cattlefax market analysts told the National Cattlemen’s Beef Association gathered in Denver for its centennial convention.
A five percent decline in the value of all U.S. beef exports during 1998 is projected by the United States department of agriculture.
It forecasts declines of 10 percent and 25 percent for Japan and Korea respectively. With a devalued currency and more unemployment in countries like Japan, U.S. beef sales will decline and could be displaced by Canadian or Australian beef, countries whose currencies have also devalued, said a report from Chuck Lambert, the association’s policy analyst.
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The U.S. sells 62 percent of its exported beef to Japan and about 10 percent to Taiwan.
Total export value for U.S. beef producers is $4.6 billion (U.S.) compared to the value of beef imports at $2.8 billion.
When the Mexican peso was devalued, it took two years to recover, said Kevin Good of Cattlefax.
Another area of sharp decline is the hide trade. South Korea was a major buyer of American hides. At the end of January, butt branded hide prices were quoted at $54 (U.S.) each; two months ago South Korea quoted $82.50.
On the domestic side, the news isn’t much better with prices on fed cattle lower than anticipated.
“It’s an understatement to say we’re disappointed. We have a lot of cattle at the front end to deal with,” said analyst Randy Blach.
Earlier projections were that fed prices would average in the low $70s but with the Asian crisis bids are in the high $60s, which for many is below break even.
There are high volumes on feed, which adds to the problem. The U.S. needs to slaughter 680,000 a week to move these cattle out of the system, said Blach.
Further, there is relentless competition from other meats. Chicken consumption continues to enjoy about five percent growth per year and pork is edging upwards.
“They are going to be a more formidable competitor for price in 1998,” said Good.
There will likely be six percent more pork and chicken available and three percent less beef.
Times will continue to be difficult for those who depend on high volume, said Topper Thorpe, head of Cattlefax. However, he predicts better results in the second half of 1998.
Price predictions
Slaughter cow numbers could improve by $6 to $8 later in 1998, and, with fewer cows available to kill, there may be some imports. Fed steers should average $69-$70 per cwt. Feeders and calves will be higher.
Bred heifers and cows should improve in price to the year 2001 when the cattle cycle peaks again.
During 1999 the total herd will be at the cycle’s low and beef production will be down by two percent.
Stability should return in the year 2000, but competitive meats will increase and take more market share away from beef.
Grain prices are expected to be volatile.
To ease some of the pain, structural change is needed within the industry, said Thorpe. Packers and processors have already consolidated but more concentration is expected to occur in the feeding sector. By the turn of this century, 90 percent of the U.S. cattle marketed will be controlled by 2,000 feedyards, said Thorpe.
He expects to see alliances form to save the industry and more value-based pricing offered by formula pricing, pricing grids or contracts.
“We have operated in a predatory and antagonistic manner up to now,” he said.
