YC.com: Cattle Prices & BSE

LINCOLN, Neb.(Jan 7, 2004) -- News of the first U.S. case of bovine spongiform
encephalopathy sent cattle markets plunging, but U.S. consumer confidence
could be preventing further drops in cattle prices, a University of
Nebraska livestock marketing specialist said.

If domestic consumer beef demand holds steady, fed cattle prices are
likely to trade in the mid- to upper $70-per-hundredweight range during the
first quarter of 2004, said Darrell Mark, livestock marketing specialist in
NU's Institute of Agriculture and Natural Resources.

Before the BSE case was reported in Washington Dec. 23, live cattle
prices were at $91 per hundredweight. They have initially stabilized around
the $75 range as many countries closed their borders to U.S. beef, Mark
said.

However, even after the price drop, fed cattle prices remain about
where they were at the beginning of 2003, he said.

"The drop in prices was a hit on historically high cattle prices,"
Mark said. "If we would have taken this hit last year, prices would have
dropped down to $60. The good news, if there is any, is that the price
decline we've seen started from historically high price levels."

Also, U.S. consumer demand doesn't appear to be dropping off.
"The USDA and the beef industry have been proactive in getting
information out there and doing a good, aggressive job of assuring
consumers that beef remains safe to eat," Mark said. Each 1 percent
decrease in consumer demand of beef means about a 1.5 percent drop in
price.

In 2002, U.S. beef exports of 2.45 billion pounds, valued at more
than $2.5 billion, accounted for about 9 percent of U.S. commercial beef
production.

The 15 percent decline in fed cattle prices stemmed from the loss of
more than 40 U.S. beef export customers, including the No. 1 buyer, Japan,
Mark said.

"It appears the price decline as a result of the export markets is
roughly equivalent to the actual price decrease observed in the past two
weeks," Mark said. "This indicates the market has not significantly
discounted beef and cattle prices in expectation of a decline in domestic
beef demand. This is good news since domestic demand accounts for nearly 90
percent of U.S. beef production."

When BSE turned up in Canada last year and halted that nation's
exports, Canadian cattle prices dropped substantially more because Canada
exports between 50 and 60 percent of its domestic beef supply, Mark said.
The loss of export markets due to BSE "had a much bigger impact in
Canada," he said. "In the U.S., we're looking to increase domestic supply
by 10 percent, in Canada they had to add 50 to 60 percent."

Unfortunately, beef export markets may not be fully restored for
months, he said. Producers can expect increased price volatility as the
market reacts to mixed signals of border re-openings.

Also, a modest price decline in the first and second quarter of 2004
was likely to occur based on increasing slaughter numbers and heavier
carcass weights projected for the first and second quarter, Mark added.
This increase in beef production was not changed as a result of the BSE
case, so that pressure on prices still could be expected. This impact also
could be worse if cattle sales slow and carcass weights grow as a result of
producers holding back cattle in anticipation of recovery.

Depending on the status of regaining export business, second quarter
fed cattle prices are expected to be in the upper $60 per hundredweight to
lower $70s.