May Beef Month 2004:
May 01, 2004
Domestic Demand Helps Beef Industry Through Uncertain Times
LINCOLN, Neb. — Concerns about BSE have not dampened domestic demand for U.S. beef, which remains strong – up 16 percent in less than six years. The lingering drought however, is reducing cattle numbers in Nebraska.
BSE, or bovine spongiform encephalopathy, is the livestock disease commonly referred to as "mad cow." It was found in a cow tested last summer in Canada, and in another in December in Washington State.
"It doesn't appear that domestic demand has been affected by BSE," said Dillon Feuz, livestock marketing specialist at the University of Nebraska Panhandle Research and Extension Center. "Demand is still growing along a trend that began in 1998."
New marketing and packaging approaches, a strong economy and trendy, high protein, low-carbohydrate diets have helped increase demand, he said, noting that strong demand and reduced supply leads to higher cattle prices.
"The BSE scare did not significantly impact American consumption, but it has definitely hurt exports, especially in Asia," Feuz said. "Domestically we can consume the high-end product that used to go overseas, but there isn't a great demand here for the variety meats."
A slaughtered steer is marketed as beef, lower-end variety meats (such as the tongue), hide and pet food, he said. "We've almost entirely lost the variety segment due to BSE, so there is some overall loss on the carcass that won't be recovered."
After the cow in Washington tested positive, more than 40 countries banned American beef, though some since have lifted the bans.
Loss of Asian markets hit especially hard.
Before the BSE discovery in Washington, Japan was U.S. beef 's top customer, accounting for 37 percent of exports in 2003. South Korea accounted for another 23 percent, said Darrell Mark, livestock marketing specialist at the university's Institute for Agriculture and Natural Resources.
A U.S. ban on live cattle from Canada also has cut into U.S. beef production, down 7 percent from last year. Part of this decline, however, is due to a drought that has lingered in the western states for several years and reduced cattle numbers.
The effects of the drought and the BSE scare could have been much worse.
Beef production follows a natural cycle that occurs about every 10 years. Fortunately, cattle numbers had declined cyclically and the drought had further reduced supply before BSE was found in the U.S. and exports were banned.
"It (finding BSE) happened at a good time in the cattle cycle, because herds were reduced," Feuz said. "If we'd been in a market with surplus beef, we would be in a far more difficult situation. Fewer adjustments had to be made because herds were already small. Feedlots slowed production and marketing down. Domestically, we are consuming most of the product that was previously exported."
The drought stretched the current cycle, which began in 1990 when producers started rebuilding herds, to 14 years and counting. For the past eight years the total supply of cattle and calves has declined in the U.S.
The tighter supply has led to relatively high prices – even after the BSE scare fed cattle prices hovered around $80 to $90 per hundredweight.
"The drought is probably one of the reasons we are enjoying the prices that we are in the Plains and the Rocky Mountains States," Feuz said. "There are no forage resources to expand herds. Some producers will look at the prices they are getting and try to expand herds, but then they will look at pasture conditions and reconsider."
Even though slaughter numbers are down in Nebraska, the state still enjoys some advantages due to its diverse agricultural economy.
"Historically, our ability to raise cattle is superior to many other places," Feuz said. "We have crops bordering rangelands, so there are alternate sources of feed."
As for the future, Feuz believes the beef market will hinge heavily on trade. If export markets reopen, he predicts the greater demand could increase prices 10 to 15 percent. However, reopening the border with Canada to feeder cattle and live cattle for slaughter could reduce prices 5 to 10 percent.
But with another year of drought expected, and continued uncertainty over BSE, it's anybody's guess.
"I see a great deal of uncertainty and variable prices ahead. We saw a great deal of price volatility after the BSE case in Canada, and we will continue to see variability as we continue to discover ways to resume trade," Mark said. "I'm encouraged by the strong domestic market response, but it's not without a lot of effort by the USDA and the Cattlemen's Association and others to make sure that accurate information gets to the consumer."
5/04-DO Darrell Mark - Ph.D.
Agricultural Economics Assistant Professor (402)472-1796
 
Dillon Feuz - Ph.D
Agricultural Economics Associate Professor (308) 632-1232
Dan Moser IANR News Service (402) 472-3007
Department:
Agricultural Economics
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