RENO, Nev. – American beef producers have entered uncharted territory with a weak dollar, rising costs and high global demand with limited market access.
Global trade in commodities such as skim milk powder, rice, palm and soy oil are up but beef is relatively flat, said Brett Stewart, an analyst with Cattlefax.
As well, the United States is facing an economic slowdown.ÂÂ
Stewart told the National Cattlemen’s Beef Association convention in Reno Feb. 7 that a recession would have less impact on food purchases, but beef is a luxury item that people might cut back on.
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Beef consumption in the U.S. remains flat at around 65 pounds per person and people are not likely to pay much more, which means exports are the only other avenue for the industry. However, while there is good demand around the world for a variety of cuts, BSE trade restrictions continue to echo in key markets such as Japan and Asia.
“Export demand is strong. It is all about access,” Stewart said.
As other currencies strengthen against the U.S. dollar, formerly strong buyers such as South Korea could use the same amount of their money to buy more American beef.
Before 2003, when borders closed following the discovery of BSE in the United States, most exported beef to South Korea was short ribs, chuck rolls and variety meats, which added an extra $75 per head. These products tend to be sold at a discount in Canada and the U.S. so if that market opened fully, there would be added value shared throughout the chain.
“I am not saying you are all going to get $30 a head more. We will split it throughout the industry.”
It is frustrating for the Americans because they have the beef to sell.
Last year the U.S. produced a record amount of beef at 26.5 billion lb., which was higher than the three year average of 25.75 billion lb.
This was accomplished at a time when the national herd was shrinking.
Cattlefax’s Kevin Good said U.S. Department of Agriculture figures show inventory is at 32.6 million head, down 338,000 from 2007.
There are no indications of expansion at this time. Drought has forced producers to sell cows, about a third of the heifers are going on feed and land prices have increased 70 percent in the last five years.
As well, producers are getting older. Many are in their late 50s and early 60s and are more interested in retirement than expanding their herds.
Dairy herds, on the other hand, are expanding because of high milk prices during the last four years. Dairy represents about 22 percent of the total cattle inventory since 1994.
“It is a trend over the next few years where beef cow numbers will be hard pressed to do any better than steady and the dairy herd will continue to grow modestly,” Good said.
Profitability has been strong in the last seven years and Good predicts 2008 prices will be similar to last year.
The average price range for finished cattle last year was $85 to $100 per hundredweight, averaging $92.
The cost of gain due to high corn prices is the wild card in the next six months, which could result in a backlog of cattle as producers try to get cattle off feed as fast as possible.
“The market may underperform because every pound you put on from that point on loses you money,” he said.
Good said feeders in the 750 lb. class will average $94 to $116 but, higher grain prices will affect what feedlots can afford to bid.
There could be strong demand for grass cattle among those who have adequate pasture because it is cheaper to keep them on grass than feed grain.
Randy Blach of Cattlefax said the U.S. packing industry is in the doldrums because of rising costs and overcapacity.
He estimated there is a 20 percent excess packing capacity and 25 percent excess feeding capacity. With a smaller herd, profits have been bid away as feeders and packers fight for market share. That excess packing capacity could also force plant closures across North America.
