040116 Beef Market Turmoil Makes Outlook Difficult

Columbia, MO - For Ron Plain, there has never been a tougher time to make a projection on where cattle prices will go in the coming year.

It's very difficult to put much confidence in a price projection for tomorrow, let alone for 2004," said the University of Missouri livestock economist.

Instant chaos. Until the end of 2003, beef producers were enjoying record-setting prices and it appeared that trend would continue well into 2004.

But one diseased U.S. cow put an end to all of that optimism.

"There has never been a time with more turmoil in the cattle market," said Plain who has been delivering price outlooks for 22 years.

Despite the uncertainty, Plain is an optimist: "It won't be a terrible year."

Record demand. Last year, retail demand for beef reached record highs, after some 20 years of declining interest in red meat.

One case of mad cow disease, or bovine spongiform encephalopathy (BSE), was found in Canada in May 2003. That shut down U.S. imports of cattle and beef from the northern neighbor.

This was followed in September by an easing of restrictions on boneless beef imports, while the ban on live cattle imports continued.

On Dec. 23, a dairy cow in Washington State was also diagnosed with BSE. That soon shut down almost all U.S. beef exports. Exports with other countries accounted for 10% of the U.S. beef production.

Suddenly a shortage of beef available to grocery store meat cases became a surplus. Price reaction. Prices for fed cattle going to market fell sharply from highs in the range of $106 per hundredweight to prices in the mid to low $70s.

With that uncertainty, Plain's first reaction for making predictions was: "Who knows?" Knowing he couldn't get away with that projection, Plain offered a quarter-by-quarter price outlook for the year.

For the first quarter of 2004, Plain sees prices for 1,100- to 1,300-pound steers in Nebraska averaging in the $72-$76 range. That is only slightly below the $77.82 average for first quarter last year. He sees that range holding, or declining only slightly, through the year.

Expects steady demand. Plain expects U.S. consumers to continue to eat beef, noting that Canadian consumption of beef increased after the BSE scare in that country last year. Interest in low-carbohydrate and high-protein diets, which has spurred beef consumption, will continue, he believes.

Waiting for Japan. The biggest factor in prices this year will be when Japan comes back into the market. In the first 10 months of last year, Japan took 36.4% of the total U.S. beef exports. "Japan is an even larger influence than those figures indicate," Plain said. "Japanese buyers take the highest quality and most expensive cuts."

Exports provided some $3 billion to the U.S beef industry last year.

To indicate the importance of that trade, Plain said cattle futures, after days of limit down trades, went limit up on Jan. 5 on news that a Japanese trade delegation was coming to study the U.S. beef situation. The Japanese had blocked import of all beef from Canada after the first BSE cow was discovered. Within hours of discovery of the U.S. BSE cow, they blocked imports of U.S. beef.

"It was easy for them to block Canadian beef, because they could substitute U.S. beef. It will be tougher to continue to block imports from both Canada and the United States," Plain said. "If Japan wants corn-fed beef, we are the source."

Source: Farm and Dairy

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