With the Canadian and American cattle markets once again linked, a look at the broad issues affecting U.S. cattle markets is in order.
There are three main factors: the cattle cycle is in the herd rebuilding stage; the hoopla over low-carbohydrate diets is waning; and world markets, particularly Japan, are not rushing to re-establish American beef imports.
The United States Department of Agriculture’s cattle inventory report showed the total U.S. cattle herd increased by about one percent from the year before. The beef cow herd was up 0.7 percent and there was a 4.2 percent increase in the number of beef heifers retained for breeding.
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Chris Hurt of the Perdue University in Indiana noted that the beef cow expansion is just beginning. In the previous cycle, the cow herd peaked in 1995 at 36.1 million and then declined to 33.5 million in the July 2004 inventory. Hurt said the cycle had five years of expansion from 1990 to 1995 and nine years of decline, from 1995 to 2004. The later stages of the contraction coincided with the jump in beef demand fuelled by the popularity of diets such as Atkins and South Beach. This tight supply and strong demand pushed cattle prices higher and the prosperity is now causing cattle producers to expand.
With the breeding herd now increasing, the number of calves this year is up slightly. These animals will eventually add to what analysts think will be an increasing beef supply in the coming months and years.
The number of cattle on feed July 1 in the U.S. was up 1.7 percent over last year. In addition to having more animals moving to slaughter, they are also heavier. In July, carcasses were about 1.5 percent or about five kilograms heavier than in 2004.
Another factor to watch is the number of Canadian slaughter cattle moving south. As we have reported, the number exported in the first few weeks following the border opening was not great. But that might pick up in the fall.
Taking these factors together, Hurt forecasts a seven percent increase in U.S. beef supply in the second half of the year compared to 2004.
At the same time, the celebrations about rising beef demand over the past couple of years are falling off in step with the reduced interest in low carb diets. An indicator of trouble in the low carb movement is the bankruptcy early this month of Atkins Nutritionals Inc., a company that made hundreds of food products and nutritional supplements based on the theories of the Atkins diet.
The diet got credit in helping beef turn around a decade of decline to post big demand gains from 2002 to 2004.
But now a beef demand index maintained by Ron Plain and Glen Grimes of the University of Missouri shows that in the first six months of the year, demand dropped 1.3 percent from the year before.
That is a fairly small amount and another beef demand index maintained by Kansas State University shows that demand might not have changed at all. However, it appears the days of rising demand are probably over.
Analysts think Nebraska slaughter cattle prices will average $80 US during this quarter and then climb back to about $82 in the final quarter of the year. Historically, these are good prices but down from last year’s tops.
The outlook could improve with a resumption in U.S. beef trade with Japan and other Asian countries.
U.S. politicians are fed up with the Japanese government’s assurances that it is committed to easing the ban. But the final decision rests with Japan’s independent Food Safety Commission, a panel of experts that has been reviewing U.S. safeguards against BSE for several months.
Once the FSC decides it has enough information, a draft consultation will be presented for public comment over four weeks. After that, the FSC will report its final conclusions to the Japanese government.
There had been hope that a resolution might be available by the time Japanese prime minister Junichiro Koizumi visited the U.S. in September.
But last week Koizumi called a snap election for Sept. 11 after he lost a key vote on his plan to privatize the Japanese postal system. It was not known at press time on Aug. 15 how the election call would affect Koizumi’s visit to the U.S.
