In 2003, things were shaping up to be the best of times for U.S. livestock producers, and then everything was turned topsy-turvy with the May 20 announcement of a single confirmed case of "mad cow" disease in Canada.
"The meat sector was turned on its head," says Joel L. Greene, livestock analyst for USDA’s World Agricultural Outlook Board. Then, with the Dec. 23 announcement that a BSE-positive dairy cow had been found in Washington state, "international meat markets were thrown into turmoil," as bans were put into place on imports of beef from the U.S., the world’s leading supplier of high quality, grain-fed beef.
More than 2 billion pounds of beef normally exported over the course of a year, was "left in limbo, Greene said at USDA’s annual Agricultural Outlook Forum at Arlington, Va.
"U.S. markets are highly uncertain, and are constantly adjusting to market closings in response to BSE. The U.S. cattle industry is faced with several challenges, including re-opening of export markets as soon as possible."
But, Greene says, the BSE finding "has brought to the forefront the need for an animal identification system with traceability that will enable the U.S. to rapidly respond to animal disease and food safety issues."
The implementation of such a system will likely prove crucial to assuring foreign customers that U.S. beef is safe and help encourage the reopening of foreign markets, he says.
As if things weren’t bad enough with the BSE findings in Canada and Washington state, the spread of avian influenza in Asia "created more upheaval in meat markets," Greene says. "Even as the Asian outbreak presented opportunities for increased U.S. exports of broilers, an outbreak of a less virulent strain of the disease in Delaware, New Jersey, and Pennsylvania just as quickly clouded the prospects for broiler exports in the short-term."
In addition to the consequences of disease outbreaks, Greene says, the U.S. livestock and poultry sectors are confronted with higher feed costs in 2004, with corn and soybean meal prices move significantly higher than last year.
A growing U.S. economy is expected to continue to support meat demand, however, he says, and in the international arena, the weakened U.S. dollar "will be supportive for meat exports."
There were hints early last year that the liquidation phase of the current cattle cycle might be winding down, Greene notes, "but any ideas of herd expansion evaporated during the year as dry forage conditions and very strong prices resulted in more cattle being placed into feedlots."
At 37.9 million head, the calf crop in 2003 was nearly 1 percent lower than the previous year, and was the smallest since 1951.
"Conditions for retaining heifers in 2004 may not be very favorable," Greene says, "and cattle liquidation could well continue for a ninth year."
Forage conditions will be crucial, he says, "and even with normal weather patterns, many pasture areas are severely stressed and water reserves will need to be built up to support an increased number of cattle."
Although the number of cattle on feed Jan. 1 in all feedlots was 4 percent higher, cattle supplies are tightening, Greene says. Feeder cattle outside feedlots are down an estimated 4 percent, and a decline in placements is expected during the year.
Commercial beef production in 2004 is forecast to decline about 3 percent to nearly 25.4 billion pounds. Six percent fewer cattle are expected to be slaughtered this year, but a recovery in average carcass weights will result in a smaller decline in beef production.
"Declines in cattle slaughter in 2003 were magnified by sharp drops in carcass weights in response to poor feeding conditions, strong beef demand, and the ban on Canadian imports from late May into August. Feedlots marketed cattle as quickly as possible, and during the last half of 2003 carcass weights averaged 25 pounds lighter than a year earlier.
In 2004, cattle weights are expected to resume a more normal growth pattern, Greene says. Average carcass weights are forecast to be about 14 pounds higher than in 2003 and cow slaughter is expected to be about 15 percent lower than 2003 — which had the highest slaughter level since 1997.
After averaging $84.69 per cwt in 2003, fed cattle prices in 2004 are forecast to be in the mid-$70 range. "The price outlook was significantly lowered following the BSE discovery in December," he says, and "there will be a greater supply of beef looking for a home in the domestic market."
Feeder price prospects are also reduced, projected to be in the low to mid-$80 range per cwt. Retail beef prices are also expected to be lower, after reaching a record $4.17 per pound in the fourth quarter of 2003. "The wholesale-to-retail spread approached $1.90 in December," Greene says, "but with lower cattle prices now in the system, the spread is likely to narrow and retail prices move lower."
The U.S. exports 90 percent of its beef to four markets: Japan, South Korea, Mexico, and Canada. After the BSE discovery, most markets were shut to U.S. beef and beef products.
"Because of the uncertainty about the length of the bans imposed on beef imported from the U.S., our export forecasts have assumed that the bans currently in place will remain until countries announce their removal," Greene says.
Thus, beef exports are forecast at 220 million pounds, compared to a record 2.5 billion pounds in 2003.
"Beef exports this year are going to be determined by how quickly major U.S. beef markets will be opened again," he says.
Imports of beef into the U.S. are forecast at 3.3 billion pounds for 2004, up 11 percent from last year, but only 3 percent above 2002.