What is in this article?:
- Is the cattle market too cautious?
- Consumer reactions determine price
• For now, market participants are taking a cautious approach until consumers more clearly define if they will reduce beef consumption.
• Some consumers may not have changed beef consumption if just the LFTB event had occurred, but when they hear two negatives against beef in a short time, they might change consumption behavior.
Consumer reactions determine price
But, Hurt said, it's not what analysts think that counts, but how consumers react that determines prices.
"The April 2012 BSE cow should not affect beef trade because tolerance levels have been established," Hurt said.
"However, we'll watch the reactions of South Korean beef consumers closely for any protest or pushback against U.S. beef. Consumers there have been the most difficult to convince of the safety of U.S. beef, so they may be the most discriminating this time as well," he said.
Hurt continued that market participants are cautious because these two negative demand impacts occurred close together in time. The combined impact may be bigger than the impact of each event if separated by more time.
"Some consumers may not have changed beef consumption if just the LFTB event had occurred, but when they hear two negatives against beef in a short time, they might change consumption behavior," Hurt said.
"Probably a final reason to be cautious is the worry that the other shoe is going to fall. This simply means that a third negative event could have even larger effects. That might include something like finding another BSE cow in the U.S. herd that increased concerns of a larger problem," he said.
On the positive side of these two negative events for the cattle industry, Hurt said that beef supplies will continue to be very small this year, with U.S. beef production down 4 percent.
So far this year, the number of heads slaughtered has been down 5 percent with total production down somewhat over 3 percent.
The recent decline in cattle prices may also discourage some cattle producers from expanding their herds at this time.
Cow and heifer slaughter has remained high in 2012, adding credibility to the argument that expansion has not begun, at least not in any major way.
Hurt reported that finished cattle prices averaged about $125 in the first quarter. Current live futures prices suggest that the second quarter will only average about $117, followed by $114 in the third quarter and $119 in the final quarter this year.
Those prices seem excessively low, and futures traders seem to be extra cautious to the tune of $3 to $5 per hundredweight.
"If no new negative events arise for the cattle industry, one can at least make the argument that forward prices are too depressed right now," Hurt said.
"However, the market is cautious for legitimate reasons. Time will tell if price recovery is in the future or if the cautious marketplace turns out to be the correct opinion."
(For a report on the BSE find in California, visit http://southeastfarmpress.com/livestock/california-dairy-cow-nation-s-fourth-case-bse).