Beef Market Advisor
Saturday, July 08, 2006
US Beef Sales May Fall Short Amid A Japan Border Reopening
KANSAS CITY (Dow Jones)--U.S. beef marketers and analysts say a trade deal with Japan that reopens its markets to U.S. beef products would be good for the U.S. industry, but the volume of sales probably wouldn't be large.
Trade sources who spoke with Dow Jones said consumer demand has shifted since Japanese officials halted further U.S. beef imports in January after a shipment of veal was found with spinal bone pieces attatched. Surveys show a significant percentage of consumers no longer want U.S. beef, and winning the market back will take time and effort, the said.
Even the U.S. Meat Export Federation, the organization devoted to marketing U.S. meat products abroad, has modest hopes.
Assuming the first shipments leave U.S. shores on Aug. 1, USMEF economists project only 25,000 to 30,000 metric tons of product will ship in 2006, said Cheryl Kamenski, manager of media communications for the USMEF.
For comparison, a chart on the USMEF Web site lists U.S. beef and beef variety meat exports to Japan in 2002 at 332,204 metric tons, with a value of $1.028 billion.
Kamenski said the products sold initially are likely to be a mix of beef variety meats destined for retail sale and steak products going to the restaurant trade.
The USMEF is keeping its estimate of initial beef trade low because Japan has said it planned to inspect every box of U.S. product it imports to make sure it all meets the trade-agreement guidelines, and the added cost could discourage trade, Kamenski said.
Source: Lester Aldrich, Dow Jones Newswires; 913-322-5179; lester.aldrich@dowjones.com
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posted by Dr. Harlan Hughes 10:57 AM [edit]
Wednesday, July 05, 2006
Economics Of Drought Management Strategies
Major editorial correction made in the recommended drought strategies at the end.
July 05, 2006
Ranchers in the dry regions of the West are starting to ask questions about the economics of drought strategies. I have now conducted considerable simulation work on the economic impact of alternative drought management strategies for the potential 2006 drought coupled in with the past 2002 drought. I think My conclusions may well surprise ranchers!
I now have now developed the tools to look at the economics of alternative drought management strategies applied to specific individual ranches.
I recommend that ranchers separate de-stocking decisions from de-populating decisions. One decision is to remove cows from the grasslands and other decision is to remove cows from ranch ownership. De-stocking is a production decision and de-populating is an economic decision -- each with its own and distinct management decision variables. These are two distinct and different management decisions!
There are three added economic costs associated with a drought that can be broken down into visible and invisible drought costs. First is the selling of breeding females at fire-sale prices which is the visible drought cost. Buying back or raising added replacements after the drought is a second visible drought cost.
Having less calves to sell in years following the de-population is an invisible (hidden cost) --sometimes a huge hidden cost. In many cases, the invisible costs exceeds the visible costs.
Second, I suggest that optimal drought strategies vary with where we are in the cattle cycle. When calf prices are high, you have several drought strategies possible. When calf prices are low, about the only strategy available is to sell cows.
In the drought of 2002, we had low calf prices and low fire-sale prices for bred cows and high replacement prices after the drought. In the drought of 2006 we currently have high calf prices, projected higher fire-sale prices for bred cows, and projected lower replacement prices after the drought. The optimal drought strategy for 2006 probably is not the same as the optimal drought strategy for 2002. Be careful using your 2002 experience in formulating your 2006 drought strategy.
I am simulating two different drought strategies -- 1) selling off 30% of the females to reduce grass demand and 2) buying feed and keeping the original cow herd in place. I am currently looking at the compounding economic impact of the 2002 drought and now a 2006 drought projected over the total decade for the years 2000-2009.
As a general comment, the drought of 2002 and drought 2006 are projected to reduce the 10-year total net cashflow on my case ranch by 43%!
Major Editorial Correction entered in the next two paragraphs 15 Aug 06 !!
My simulations suggest that buying feed and keeping the cow herd in place in the 2002 drought so that one could continue selling full production of calves produced during the high-priced phase of the cattle cycle reduces the dollar impact of the drought substantially over the more traditional drought strategy of de-populating some of the herd in 2002. It is the record calf prices in 2003, 2004, and 2005 that made this difference.
My simulations also suggess that given the high firesale prices of breeding females, at least so far into 2006, that it makes more economic sense to de-populate the beef cow herd in the 2006 drought and then re-populate the herd back in 2 to 4 years down the road when bred females are projected to be lower priced. This is just the opposite strategy as was suggested for the 2002 drought.
My simulation work suggests that the drought management strategy that you pick is all critical!
Harlan Hughes
Professor Emeritus
North Dakota State University
harlan.hughes@gte.net
ph: 701-238-9607
posted by Dr. Harlan Hughes 10:58 AM [edit]
