With recent downsizing in the U.S. cattle industry linked to a lack of profitability, agricultural 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 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 data that showed the number of cattle and calves on feed destined for slaughter totaled 10.989 million head, as of Feb. 1, 2010. That was 2.6 percent 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 percent below 2009. And, marketings of fed cattle during January totaled 1.77 million, 2 percent above the previous year, but the third lowest fed cattle marketings for January since such USDA began keeping such data in 1996.
Tonsor shared forecasts from the Livestock Marketing Information Center which put average prices for fed cattle in western Kansas at $87 to $90 per hundredweight (cwt) in the second quarter of 2010, $83 to $87/cwt in the third quarter, and $87 to $92/cwt in the fourth quarter. Average price forecast for the year 2010 is $86 to $89/cwt, which would be more than 5 percent higher than prices realized in 2009.
CME live-cattle futures prices for April delivery closed at $93/cwt on March 4, while futures prices for October delivery closed at $92.70.
Tonsor said product quality remains "vitally important" and that food safety recalls 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 percent drop in beef demand.
Tonsor also discussed the importance of product convenience in meat demand.
"A lack of new products holds beef demand back, particularly relative to poultry, where approximately twice as many new convenience products have been introduced over recent years," he said.
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 some groups´ 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 Asian buyers.
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 agricultural economist said several other issues worth monitoring include the CME´s creation of a Distiller´s Dried Grains futures contract, set to launch April 26. It´s also important to watch for any developments in possible new regulations in response to the recent increase in beef recalls.