A tight beef supply and strong beef demand have been a cattle producer's dream come true this year as record high cattle prices have dominated the market. Still, with so many unknowns in the future of beef, how long can this dream last?
“Looking ahead, a great amount of uncertainty surrounds the current cattle and beef market,” says Erica Rosa, agricultural economist with the Livestock Marketing Information Center. “Some of those unknowns include trade with Japan, Korea and Canada, disruptions in market because of animal disease and whether beef demand will remain strong by historical standards.” (At presstime the United States had reached an agreement that will resume beef trading with Japan.)
The ban on live animals from Canada is expected to lift soon, but the result should not affect cattle numbers significantly, says Curt Lacy, livestock Extension economist at the University of Georgia. “Canadian cattle will be a factor sometime, but the total number of live cattle from Canada is a small percentage of the annual slaughter in the United States. There will be a little downward pressure on price, but it won't play a huge role.”
John Anderson, associate Extension professor at Mississippi State University, says pressure is mounting to open the border with Canada, particularly when trade with Japan resumes. “The closer we get to resuming normal trade with Japan, the harder it will be to justify keeping the Canadian border closed.”
Though the framework has been laid for resuming trade with Japan, Anderson says the market will not be affected any time soon. “We are a long way from getting any meat moving.”
Walt Prevatt, professor of agricultural economics at Auburn University, says he's also skeptical of the timely trade with Japan and its influence on the United States export market. “I'm like the old-timey cowboys who are critical of if and when trade will actually resume. We have a lot of problems to work through first.”
One of those issues is food safety, says Prevatt. “Beef demand has diminished in Japan by 15 percent, partly because of about 14 BSE cases. They've really taken it on the chin.”
Since the isolated BSE incident in the United States last December, producers should not discount the possible threat of animal disease on beef demand in the United States, Anderson says. “We are fortunate that consumers didn't react negatively to the incident. If more problems arise that cause consumers to rethink their beef consumption, we have a serious issue on our hands. We're not much better off in terms of our ability to trace down BSE, but we are making some changes.”
Despite the present uncertainty, Prevatt says the likelihood of a BSE case resurfacing is very low. “We have increased our safeguards and become more aggressive about trying to find the problem.”
Both Japan and South Korea are pushing for animal identification and country of origin labeling to insure food safety and quality, Prevatt says.
“These practices will help the industry in the long run by identifying the less productive animals. Unfortunately, they may cause heartburn for small operators in the near future, as they are forced to spend more time and money ear-tagging and keeping detailed records.”
Still, the biggest competition for high cattle prices may not come from other countries or animal disease threats but from other meats, Lacy says. “There's a good demand for poultry, pork and beef in the next several years. The trick is how increase in production will play out.”
Keeping an eye on the wholesale market is also a legitimate concern for producers, according to Anderson. “Right now, the wholesale market is not that strong. We've pushed the limits of where we can get retail prices without seeing a reduction in consumption. The wholesale market may not be boosting prices to record levels like it was 2 or 3 years ago.”
Another factor that may influence cattle prices in the future is the recent herd expansion in the western states. While drought has been a major factor prohibiting U.S. cow-calf operations from expanding their breeding herds recently, the promise of more favorable weather conditions has prompted many western operators to keep more replacement heifers.
“The Mid-Year Cattle Inventory Report showed some indication that expansion will begin this year. We will see some expansion, but it will be very slow,” Anderson says.
Herd expansion will be beneficial for cattle prices in the near future, according to Prevatt. “As heifers are held for replacements, there is a beef tonnage decrease, which is always price supportive. It will be two or three years down the road before those heifers produce calves that will significantly affect the market.”
Forecasts based on the cyclically small size of the United States cow herd and stable consumer demand continue to call for relatively high cattle prices well into 2006, Rosa says.
Lacy believes the overall tight supply and good demand should continue for the next couple of years. “I don't see there being much increase in supply for feeder cattle. If everything continues as it is today, we should see very favorable prices next year for calves and breeding stock.”
What happens this fall will provide more insight into next year's market price, Anderson says. “We haven't seen exceptional movement of cattle and beef. For most of 2004, there was a short supply. Now, there is not a shortage of market ready cattle.”
This year's record corn crop will also keep feed costs low, Anderson says. “This year's crop is unprecedented, and corn is cheap for the foreseeable future. In the short run, this is good, but in the long run, it encourages a lot of cattle fed to heavy weights, which means more beef on the market.”
Lacy urges cattle producers to consider the value of a price risk management marketing alternative. “Those involved in stockering or feedlot operations should buy options or hedge part of their cattle. There is a lot more downside risk than upwards potential with theses high prices. Having an option is worth at least an extra two weeks sleep.”
The continued success of the cattle industry will depend on its ability to overcome obstacles and keep consumers well informed, Anderson says. “We have learned the importance of foreign markets, foreign animal disease and adequate response, witnessed the benefit of closing trade with Canada and suffered from the closing of trade with Japan. As a whole, the industry has been very proactive in dealing with consumer concerns. Providing a good, quality, safe product is a job that never ends.”