A Cattlemen's Day Look at the Markets
Ag economist outlines market trends, considerations for beef industry.
With recent downsizing in the U.S. cattle industry linked to a lack of profitability, ag economist Glynn Tonsor encouraged beef producers to heed recent data indicating why demand has softened and how it might be improved.
"The weak U.S. economy has hurt beef demand over recent quarters," said Tonsor, who spoke March 5 at Kansas State University's (K-State's) 2010 Cattlemen's Day. Tonsor is currently on faculty at Michigan State University, but will join K-State's faculty in April.
He cited recent U.S. Department of Agriculture (USDA) data showing the number of cattle and calves on feed destined for harvest totaled 10.989 million head Feb. 1. That was 2.6% below the Feb. 1, 2009, count and the lowest number in seven years. In addition, placements of cattle into feedlots during January totaled 1.83 million, 2% below 2009 figures. Marketings of fed cattle during January totaled 1.77 million, 2% above the previous year, but the third-lowest fed-cattle marketings for January since USDA began keeping such data in 1996.
Tonsor shared forecasts from the Livestock Marketing Information Center (LMIC), which put average prices for fed cattle in western Kansas at $87-$90 per hundredweight (cwt.) in the second quarter of 2010, $83-$87 per cwt. in the third quarter, and $87-$92 per cwt. in the fourth quarter. The average price forecast for the year 2010 is $86-$89 per cwt., which would be more than 5% higher than prices realized in 2009.
CME live-cattle futures prices for April delivery closed at $93 per cwt. March 4, while futures prices for October delivery closed at $92.70.
Product quality remains "vitally important," Tonsor said, and food safety recalls do have a negative effect on consumer demand for beef. He cited a study that showed 2009 brought 41 beef recalls for safety concerns, compared with 26 in 2008. This increase in recalls alone triggered an estimated 1.34% drop in beef demand.
Tonsor also discussed the importance of product convenience in meat demand.
"A lack of new products holds beef demand back," he said, "particularly relative to poultry, where approximately twice as many new convenience products have been introduced over recent years."
Other factors that affect demand are animal welfare concerns by the consuming public and the perceived safety of beef beyond recalls.
"Our lack of a good system when it comes to traceability and identification sends a certain signal to the public," Tonsor said, adding that calls for a ban on antibiotic use haven't gone unnoticed by consumers, either.
Tonsor said a plan under consideration to leave animal identification and traceback mechanisms up to each individual state to develop would impair beef trade with other countries, particularly in Asia. Some of those countries, including Japan, have been among the largest buyers of U.S. beef in years past, and they would prefer a national program, rather than a "patchwork, state-by-state system."
The ag economist said several issues worth monitoring include the CME's creation of a Distillers' Dried Grains futures contract, set to launch April 26, and any developments in possible new regulations in response to the recent increase in beef recalls.
An audio interview with Glynn Tonsor is available on the K-State Research and Extension News Media Services Web site: http://www.ksre.ksu.edu/news. (Go to K-State Radio Network at the bottom of the page and click on "Agriculture Today.")
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