Cattle Today

Cattle Today







CATTLE TODAY

MEAT INDUSTRY FACES CHALLENGES IN 2008

New York, Feb. 6, 2008 – After a decade of profitability, U.S. cow/calf producers face increased competition and costs, and a stagnant U.S. economy that may change consumer preferences, according to a new Rabobank report.

In its February “Beef Ag Focus,” Rabobank reports that factors such as higher feed costs, competition for land and weather issues have kept cow supply steady over the years. At the same time, an increase in disposable incomes and changing diets around the world has created strong demand for meats, which has kept prices and profitability high. However, as the U.S. economy falters some products will face a downward trend as consumers seek alternative products that are less expensive.

“Historically, a prolonged period of profitability would be sufficient to encourage an expansion in production – the phrase ‘nothing cures high prices like high prices' may have been coined with the beef industry in mind, but has not necessarily held true over recent years,” said Fiona Boal, Executive Director of Rabobank's Food & Agribusiness Research and Advisory (FAR) department. “Instead, it would appear that significant changes in the cow herd are a trend of the past, not the future.”

Supply

Since 1995, the beef cow herd has effectively declined however, productivity advances have allowed the industry to produce additional meat from the smaller herd. Fiona Boal, Rabobank's FAR's expert on Beef cautions that “there is obviously a genetic limit to larger cattle, although it is probably some way off.” Beyond genetics, higher feed costs and packers, who don't want to process heavier animals, will minimize future productivity increases.

Other factors also contribute to the decline in the supply of beef cows:

1. Volatility in the input and cattle markets.

2. Rising energy and feed costs.

3. An aging rancher population.

4. Competition for land for recreational use and suburban housing.

5. Weather events such as recent droughts in the Southeast and West.

Due to the combination of these factors, overall cattle inventory levels are expected to remain fairly flat through the end of the decade. Moreover, 2008 levels will remain similar to 2007, and any increase in beef production will result from increased cattle imports from Canada and larger cattle.

Demand

While supply has remained flat, the past year marked records for beef, pork and turkey retail prices. Given that red meat and poultry production was also higher in 2007 such strong retail prices would indicate that domestic demand in the U.S. has held up exceptionally well. However, as the U.S. economy continues to struggle, consumers are likely to seek out less expensive meat alternatives.

“Forecasts of a weaker economy and continued high energy prices are not good news for beef, the most price-elastic of the major meats,” said Boal. “Consumers in the U.S. are known to trade down when it comes to their beef purchases before reducing the amount of beef consumed. This means that there will be more pressure on primal cuts, especially at the retail level where the retailers have the ability to react quickly to consumer preferences by shifting the focus of their featuring activity..”

Outside the United States, the beef industry enjoyed the benefits of a lower dollar in 2007. However, they continue to meet stubborn resistance to the complete reopening of key export markets – such as South Korea and Japan. Within the industry opinions seem to be split on whether to hold out for complete market reopening in both South Korea and Japan or to consent to a less than perfect access agreement.

[Home]

Send mail to webmaster@cattletoday.com with questions or comments about this web site.
Copyright © 1998-2008 CATTLE TODAY, INC.