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Six Key Factors Impacting Today's Beef Prices
September 11th -- business travel in the U.S. is still not back to where it was before Sept 11th. As business travel dropped off, restaurant beef consumption dropped off dramatically. Since most travelers consume high valued beef cuts, we now lost a high-value beef market. In contrast, home beef consumption went up. The problem is that home consumption tends to consume lower-valued cuts. The net result of reduced consumption of high-valued beef and increased consumption of lower-valued beef is the drop in the total carcass value. Decreasing carcass values implies lower cattle prices.
BSE in Japan -- The BSE outbreak in Japan immediately reduced U.S. and Canadian beef exports to Japan. Unfortunately, this market also focuses on high-value beef. Now we lost a 2nd high-valued beef market. There were reports of a 50% drop in Japanese beef consumption. This consumption has been slow in returning. In fact, U.S. exports are still not at the pre-BSE level. Fortunately, exports to South Korea and Mexico have increased in recent months reducing some of negative Japanese market drop.
Poultry exports reduced -- Russia, making up the U.S. largest poultry export market, decided to retaliate a new U.S. steel trade policy with a blockade on poultry imports. This, then, dumped this export-poultry on the U.S. domestic market to compete with existing beef and pork. We saw retail stores featuring poultry at the expense of beef and pork. While the Russian trade is an on and off situation and has not yet been totally solved, the U.S. now has record amounts of beef, pork and poultry competing for the consumers' dollars.
U.S. Consumer is feeling the down economy -- U.S. consumers are pulling back on domestic consumption and are moving to lower-priced beef cuts. This is adding to the reduced carcass values.
Western U.S. and Canadian Droughts -- drought-stressed cattlemen are selling heifers to feedlots for added feeder cattle leading to added beef production. Added cull cows are adding to total beef production. The added beef production is pulling beef prices down.
Increased carcass weights -- Increased carcass weight is a main contributor to this years increased beef production. At a time when beef demand is under some pressure, we dramatically increase beef supply. The data shows Canadian beef production up 7% the first half of 2002 compared to 2001. U.S. beef production went up 4.6% in the first half of 2002.
Cattlemen's response to reduced harvest prices for beef has been to feed animals longer. Longer feeding leads to increased carcass weights. For example, in the last week of July, 2002 the U.S. harvested 696,000 head of cattle averaging 1248 pounds live weight. That was an average of 26 pounds over a year ago. The added weight from 26 added pounds on 696,000 head is equivalent to an added 14,800 head of extra harvested cattle. Canadian carcass weights are also up substantially with July 2002 harvest weights up 16 pounds per carcass. Both countries are producing substantially more beef from its current beef cattle inventory.
In summary, we are awash in pork, poultry, and beef!
posted by Dr. Harlan Hughes 4:24 PM