U.S. Consumers Still Have Appetite for Beef

MANHATTAN, Kan. -- Tight cattle supplies and strong demand for beef will keep cash cattle prices from taking much of a dip this summer, a Kansas State University agricultural economist said.

"Cattle prices this spring have been supported by surprisingly small slaughter and beef production," said James Mintert, professor and livestock marketing specialist with K-State Research and Extension. "Slaughter cattle supplies are expected to remain tight the rest of
the spring and into summer."

With net placements of cattle on feed in the United States 13 percent below comparable 2003 levels during January-April 2004 and with the current strong domestic demand for beef , prices may well bottom out in the high $70s to high $80s (per hundredweight or cwt) this summer,
Mintert said.

That would be down from weekly average Kansas slaughter cattle prices that peaked in early May this year at $90.39 per cwt, before sliding to $86 the week ending May 21. However, the decline is not expected to be nearly as dramatic as sometimes happens in the summer, he said.

Some of the strong demand for beef apparent this year can be attributed to U.S. consumer interest in low-carbohydrate diets, Mintert said.

According to domestic beef demand index calculations, demand rose nearly 11 percent in the January-March quarter, compared to a year ago, he said. A surprising aspect of the recent strong cattle market is that the United States is missing two of its key beef buyers - Japan and South Korea, Mintert said. Japan, which has been the biggest buyer of U.S. beef in recent years, imposed a ban on U.S. beef purchases after a case of bovine spongiform encephalopathy (BSE or mad cow disease) was discovered in Washington state in December 2003.

On the other hand, Mexico - another large U.S. beef customer - lifted its ban on boneless boxed beef cuts in March, and exports to that destination are starting to rebound. U.S. cattle feeders have been selling animals in a timely manner at weights lighter than the year-ago average, he said.

In the first quarter of 2004, steer weights were 2 percent lighter than a year ago. Weights still were below year-ago levels in early May, although they were starting to increase seasonally. "The combination of small slaughter and lighter weights means beef production this spring has also fallen well below a year ago, averaging about 8 percent below 2003's through late May," the
economist said. "Factor together the lighter weights, smaller supply and a domestic beef demand that was 11 percent stronger in the first quarter of this year, and it all adds up to a relatively strong summer cattle market."

With net January-April placements of cattle on feed this year 13 percent below 2003's, Mintert expects fed cattle marketings to stay 6 to 8 percent below last year's this summer. Weights on those cattle, however, will likely be heavier than a year ago, given that last year's weights were extremely light. That would put beef production 4 to 6 percent below last summer's, although limited exports probably would keep U.S. per capita beef supplies "about equal to or slightly above last year's," he said.

This supply-and-demand scenario suggests that prices this summer will average in the high $70s to low $80s per cwt, Mintert added. That compares with last summer's $81.47 average.
Cattle price prospects for the fall quarter are clouded by an uncertain beef export picture. "Beef production is expected to be larger than last year's, and domestic per capita supplies will also be larger," he said. "But how large domestic per capita supplies will be is dependent on whether or
not trade resumes with Japan. Although exports are expected to pick up as the year progresses, the U.S. could still be locked out of the Japanese market for at least part of the fall."

If that's the case, the economist said, per capita beef supplies could easily rise 5 to 8 percent over year-ago levels. "If supplies increase that much, slaughter cattle prices will average well below last year's $95 per cwt average, even if demand continues to improve," he said.