050119 Huge Losses Force Cuts In U.S. Beef Production

Chicago, IL - Fading interest in high-protein diets and the loss of exports due to mad cow disease have hurt U.S. beef sales to the extent that beef companies are racking up huge losses that are forcing them to cut production.

Tyson Foods Inc, the largest U.S. meat company, said that beginning next week it will halt beef production at four plants and reduce output at another.

Privately held National Beef Packing Co. LLC, the fourth-largest U.S. beef company, also said it was cutting production about 20 percent.

"It is domestic demand. It just isn't where it was two years ago when we were at the crest of the Atkins diet craze," said Ann Barnhardt, analyst with HedgersEdge.com, a livestock industry consulting firm.

Beef sales remain strong, but Barnhardt said they are not strong enough to cover what beef plants are paying for cattle -- $88 per hundred pounds this week. Cattle prices remain high in part due to tight supplies in the United States and to the lack of imports from Canada.

Canadian cattle have been banned since May 2003, when that country reported its first case of mad cow disease. Beef plants in the northern United States had relied on Canadian cattle to fulfill some of their production needs.

Also contributing to the beef industry's losses is the fading popularity of high-protein diets, such as the Atkins plan.

"That has just taken the luster off of domestic beef demand," said Barnhardt.

HedgersEdge estimates operating margins for the beef industry and currently it shows beef plants on average are losing nearly $60 on each steer and heifer they slaughter.

"It hasn't been since 1991 and 1992 that margins have been at the level to cause plants to go dark on an ongoing basis," said Jim Robb, an agricultural economist with the Livestock Marketing Information Center.

While Robb agrees the high-protein-diet craze may be cooling, he blames the losses largely on the loss of exports, excess domestic production and a rise in beef imports.

Foreign countries banned U.S. beef beginning in late December 2003, when the United States reported a case of mad cow disease. Prior to that the United States was exporting about 10 percent of its beef.

"We are not exporting, we are importing, and we are producing enough of it," said Robb, of the beef industry's difficulties.

In December, the U.S. Agriculture Department estimated 2004 beef imports at 3.53 billion lbs, up nearly 18 percent from 2003, and projected 2005 imports at 3.66 billion, up nearly 4 percent from 2004.

Robb believes the beef industry's difficulties may continue for another two months. After that, beef demand should improve and cattle supplies should increase.

Also Canadian cattle could be available to U.S. plants if the U.S. Agriculture Department succeeded with its plan to lift the ban on those cattle beginning March 7. At least one cattle group is contemplating filing suit to keep the ban in place.

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