U.S. beef demand still looks strong

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MANHATTAN, Kan. – Americans have had a taste for beef lately – so much so that data from the first three months this year indicate beef demand was significantly stronger than during 2002.

“Initial concerns that detection of BSE (bovine spongiform encephalopathy) in a lone Alberta (Canada) beef cow would reduce consumer demand for beef have, so far, proven unfounded,” said Kansas State University agricultural economist James Mintert.

“Pending the release of more test results, the major impact of the Canadian BSE situation could prove to lessen North American beef supplies.”

Remain stable. News of the case, also known as mad cow disease, rocked livestock futures markets on May 20 and weighed on some restaurant chains’ stock values.

But prices quickly rebounded, and initial data indicate U.S. consumer demand for beef has remained relatively stable – and strong, said Mintert, who is a livestock marketing specialist with K-State Research and Extension.

Background. As part of a follow-up investigation to the May 20 BSE news, USDA officials announced June 5 that five bulls were shipped to Montana in 1997 from a Canadian farm involved in the BSE probe.

The bulls were born in Saskatchewan in 1996 in one of the potential source herds for the cow found to have BSE. The current location of the bulls had not been determined.

Possibilities. “Prior to the Canadian BSE announcement, it appeared that (U.S.) domestic beef demand was significantly stronger than in 2002. (The) Wholesale beef price strength following the news implied that U.S. consumers’ demand for beef was largely unaffected by BSE concerns,” he said.

“However, if additional cases were to be found, beef demand could decline significantly.”

Demand boost. Strong demand helped boost light choice-grade boxed beef prices to a record-high average of $147.76 per hundredweight the last week in May – less than two weeks after the Canadian BSE news.

In fact, during the 10 days after the May 20 announcement, U.S. prices on light, choice beef rose 4.5 percent.

“The increase in wholesale beef prices indicates consumer demand faltered little, if at all, in response to the BSE announcement. Furthermore, it suggests that smaller beef supplies are starting to be reflected in wholesale prices,” the economist said.

Banning imports. Consumer demand for beef is not the only factor at work, however.

Once news of the BSE discovery came out, all major beef-importing countries, including the United States, imposed a ban on imports of cattle or beef from Canada.

That’s significant, Mintert said, because it effectively removes Canadian supplies (in excess of Canadian demand) from the world market.

“That could have a huge impact on U.S. supplies if the ban remains in place very long,” he said.

CanFax. According to the Canadian agency CanFax, 42 percent of Canadian boxed beef was exported in 2002, and the destination for 72 percent of those exports was the United States.

Based on the ban of Canadian slaughter cattle and beef imports, U.S. beef supplies are probably at least 5 percent below what they would have been without the ban, Mintert said.

Full effect. But the impact doesn’t stop there. The full effect will not be felt until reduced supplies of Canadian feeder cattle coming into the United States are reflected in smaller U.S. slaughter cattle supplies, he said.

Plus, the ban on Canadian imports by other countries could also boost U.S. exports, as traditional buyers of Canadian beef look to other beef suppliers.

After the United States, the largest buyers of Canadian beef in 2002 were Mexico and Japan.

“It would not be surprising to see the U.S. pick up most of this business, if the export ban remains in place very long,” the economist said.

Dominate the market. Mintert said he thinks the Canadian BSE situation could dominate the cattle market for some time.

“If tests confirm that the single BSE case is an isolated incident, look for USDA to lift the ban on Canadian cattle and beef imports. But it would not be surprising if that takes several more weeks,” he said.

“Under this scenario, beef supplies in the U.S. will likely be 5 to 6 percent smaller than otherwise would have been the case during June and possibly July.”

Price expectancies. Those smaller beef supplies, coupled with strong U.S. consumer demand, could push cash prices up into the mid-$80-per-hundredweight area in late June, Mintert said.

If, however, the ban is lifted in late June or early July, it likely will mean an influx of backlogged Canadian cattle coming to market.

That could lead to Canadian slaughter plants’ working overtime, as well as to larger slaughter cattle exports to the United States.

“Under that scenario, there would be a sharp increase in U.S. beef supplies, which will likely push prices lower,” he said. “The nature of the decline would depend on how long the ban is in place, but prices could drop by 10 percent or more in a short time span.”

If more BSE cases are identified, the odds are high that U.S. beef demand will drop, he said.

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