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Demand Is The Answer

If you wonder if and when cattle markets will perk up, look at demand.

If you wonder if and when cattle markets will perk up, look at demand.

"We've averaged $83 to $84 on fed cattle this year. If we had the same demand we had a year ago, our market would be averaging $94-$95/cwt." That’s what Randy Blach, CattleFax executive vice president, told participants at the recent annual meeting of the Texas Cattle Feeders Association.

Though a decline in demand was expected amid the world’s recession, it has been more precipitous than anticipated. For July through September, as example, Blach says demand is down 10-15% in the wholesale sector. Traffic in the food service sector is reported to be at the lowest level in 30 years.

"We've been able to sell ground beef. We've been able to sell premium grinds, chuck grind, round grinds, those kinds of things, at some pretty good price levels. The problem we've had as an industry is being able to generate as much value out of our middle meats because of this loss in demand in restaurants," Blach explains.
That, and exports continue to lag.

According to USDA’s most recent Livestock Dairy and Poultry Outlook (LDPO), total U.S. beef exports are expected to be 1.825 billion lbs. in 2009, a 3% decline from last year.

"We still aren't back to the same levels of beef exports that we were pre-BSE. We were exporting 2.5 billion lbs. in 2003. We're going to be lucky to be at 1.8 to 1.9 billion lbs. this year," Blach says. If U.S. beef was operating under the same trade protocols with Japan as it is with South Korea, he adds, "it would be worth another $60-$70/head across our fed-cattle market."

According to the LDPO, U.S. exports are expected to increase almost 6% next year to 1.925 billion lbs., as foreign demand picks up with macroeconomic conditions that are expected to improve through 2010.

On a brighter note, Blach says that because supply levels are in check, a significant increase in fed-cattle prices could come as the economy recovers, possibly toward the end of 2010. He expects the national herd size to level off because the recent moisture situation has been good. According to Blach, the drought situation for the U.S. as a whole is probably the best it's been in 30 years, despite areas of concern such as South Texas.

"We've got good grazing conditions. We've built a mountain of hay around the country,” Blach explains. “I think we're going to see this cow herd start to stabilize – not grow – but stabilize from this point forward."

Though a dwindling beef cow herd and tighter supplies have helped stem the economic bleeding, LPDO analysts point out there is likely some tough sledding ahead because of carcass weights. Pointing to third-quarter placements, especially of cattle weighing 800 lbs. or more, they explain, “These placements of heavy feeder cattle imply either that steer and heifer slaughter over the next two quarters could remain somewhat burdensome relative to demand and/or that dressed weights could continue to be heavier year-over-year through the first half of 2010. However, these quarterly placement numbers include the second lowest May and June net placements since the series began in 1996, and, despite the burdensome outlook for the whole quarter, could lead to some supply relief – and some measure of price support – during November and/or December.”