Beef prices expected to stay up as supply shrinks

By Associated Press
Posted Oct. 27, 2010 at 6:03 a.m.

Americans love their beef, but with prices expected to remain high for the next few years and other options plentiful, their loyalities might be challenged.

Average retail prices of beef have climbed from $4.18 per pound in July 2009 to $4.44 per pound last July, a change largely due to a tight supply of cattle. Ranchers and feedlots have reduced supplies in response in large part due to rising prices of corn and soybeans fed to cattle, economists said.

“You’ve got a whole bunch of things coming together and it’s driving all meat prices higher,” said Ken Mathews, an agricultural economist with the research arm of the U.S. Department of Agriculture. “Beef is the highest price of the meats so that’s the one that gets the notice.”

Cattle producers “took it on the chin” the past several years, Texas A&M University livestock economist David Anderson said, “and the response to that economically is to produce less because you’re losing money.”

The poultry and pork industries are poised to fill the gap, which ultimately could cause beef prices to drop. Consumption of poultry — chicken and turkey — is forecast to climb by 8.4 percent to 107.9 pounds per person, by 2019, according to the USDA.

“It puts beef in a difficult demand situation longer term,” Anderson said.

The USDA projected per capita consumption of beef would drop through 2014 — to 56.2 pounds — as beef production continues to lag.

For now, said Anderson, consumers dealing with a lingering recession are choosing hamburger over steak because it costs less, though demand for ground beef has raised its price, Anderson said.

The report predicts that by 2019 per capita consumption will rebound to 58.4 pounds. That’s still nearly 36 pounds less than in 1976 when per capita consumption reached an all-time high of 94.3 pounds.

Although U.S. demand for beef has been soft, cattle producers have seen exports climb toward levels not seen since a mad cow disease scare in 2003.

U.S exports worldwide this year through August are up 16 percent, compared to the same eight-month period in 2009, according to figures from the U.S. Meat Export Federation.

Japan and South Korea — two of the biggest customers for U.S. beef — are helping fuel the demand. In the first eight months of this year exports to Japan’s are up 26 percent over the same period in 2009 and South Korea’s are up 131 percent.

After years of dealing with drought and rising cost of grains to feed their animals, ranchers are recouping their losses through exports and higher domestic prices.

Producers see they’re able to get more for their animals at market and that’s contributing to them selling cows.

“It just makes me feel pretty good,” said Jim McAdams, a fourth generation Texas rancher and former president of the Denver-based National Cattlemen’s Beef Association. “I’m very happy.”

Forecasts call for beef prices to remain high as production remain flat or declines as the cattle industry continues to recover from four years of being in the red.

“I think it could be into 2012” before producers begin to build their herds again, Anderson said. “The reason I say that is the industry has continued to reduce the size of their herds.”

The U.S. Agriculture Department announced the smallest July 1 total inventory on record, confirming expectations that cattle producers were continuing to cull their herds while auction prices were strong. In January, the size of the U.S. herd — cattle and calves — was 93.7 million, down 1 percent from the 94.5 million the previous year.

“We’re still in one of our longer liquidation periods maybe ever,” said Mathews.

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