• If you are having problems logging in please use the Contact Us in the lower right hand corner of the forum page for assistance.

Low-Carb Diet For Beef Boost

HAY MAKER

Well-known member
Economist Credits Now-Fading
Low-Carb Diet For Beef Boost

By David Bowser

MANHATTAN, Kan. — A Kansas State University ag economist sees declining beef demand, new highs for fed cattle and lower prices for feeder cattle.

Speaking at the annual Cattlemen's Day here, Dr. Jim Minert said he also sees long-term growth for exports, but a challenge in the cow-calf industry from Brazil and other countries with low cost advantages.

Over time, the cattle industry has gotten substantially larger, he said.

"We were at 60 million head in the 1920s," Minert said, "and by 1975, we had over 132 million head."

He said that's a picture of a healthy industry. It was an industry responding to growth in the aggregate beef demand in the domestic market.

But from 1975 through the turn of the century, it's a much different perspective.

"It was an industry that was shrinking over time and responding to a lack of profitability," Minert said. "We currently have an inventory that's about 26 percent smaller than it was three decades ago. I would argue that over the last three decades, that picture would describe an industry that was responding to reductions in aggregate beef demand in the domestic market."

Domestic beef demand had dropped in 1998 to roughly half of what it was in 1980.

"There was a dramatic decline in beef demand over that timeframe," Minert noted.

In the late 1990s, the data became a little more positive. There were significant improvements in demand in percentage terms. Base demand topped out in 2004 after gaining about 26 percent over 1998 demand numbers.

But since 2004, the picture starts looking a lot more negative again.

"Beef demand started turning down at the retail level about the middle of 2005 and continued throughout 2006," Minert said. "I suspect we're going to see a continuation of that in 2007."

His concern is that the industry is looking at the possibility of beef demand slipping back to where it was in the 1980s and 1990s.

He said he has no information to indicate why demand is slipping, just that it is.

"We're left to speculate about some possibilities with respect to recent downturns in beef demand," Minert said.

He said that during the late 1990s and earlier this decade, there was tremendous interest on the part of consumers in low carbohydrate diets.

"They were incredibly popular," he said.

The low carb diet effect has worn off dramatically the last couple of years.

Minert said he's concerned that in looking at beef demand data, what he saw in the late 1990s was simply a response to the low carb diets.

"Now perhaps, we've shifted back into the same mode we had in much of the 1980s and much of the 1990s," Minert said.

He said there is also some concern about the disposable income of consumers slowing because consumers are devoting more of their income to energy.

"Going forward," Minert said, "I'm concerned, looking at 2007 and perhaps 2008, that we could see some continued year-to-year declines in retail beef demand."

Last year, that decline was about six or seven percent. Minert said he doesn't think declines this year or next will be that severe, but he does see declines in beef demand.

"I'll be surprised if we see anything other than declines," Minert said.

He said that is a message to the industry to get back to basics and provide consumers what they want.

"Consumers have demonstrated time and time again that what they're interested in is high quality products that are convenient and very easy to prepare," Minert said. "I think that's an argument for voting more checkoff dollars for new product development."

He said there have been some industry success stories in that area.

Minert said he thinks that's the only way to turn around demand in the domestic market.

The international market is no less conflicted.

"We were a net importer of beef on a dollar value basis in the late 1970s and early 1980s," Minert said.

Throughout much of the 1980s, 1990s and into the new century, there was dramatic growth in exports.

"We got our net exports up to near $2.5 billion," Minert said. "That plummeted when we had BSE in December of 2003. Now, of course, we're back to being a net importer on a dollar value basis."

The challenge is getting back to being a net exporter.

Before international markets closed on U.S. beef in 2003, Japan was the number one export market. Mexico was number two. South Korea was number three, Canada number four.

"If we really want to see our export volumes get back to where they were before BSE," Minert said, "we need to regain unmitigated access to both the Japanese and South Korean markets."

He admits that the market is officially open to Japan, but it's open in a limited way.

"We're restricted to exporting products from cattle of less than 21 months of age," Minert noted.

The percentage of U.S. beef going to Japan now is much smaller than it was in pre-BSE days.

"Very little product is moving to Japan in the current environment," Minert said.

South Korea, the number three market pre-BSE, signed an agreement last summer suggesting that their market would open to U.S. boneless beef.

"In practice that market is still closed," Minert said. "The South Koreans are rejecting virtually all the shipments that have gone over there for bone fragment problems."

Minert said that if the U.S. is going to see exports rebound, the Japanese and South Korean markets will have to be reopened.

"Trade with Canada continues to be a little bit controversial," Minert said. "We've reopened the border with respect to live animal trade."

In 2006, the U.S. imported about a million head, well below the record year of 2002. In fact, 2006 imports were some 39 percent below 2002.

"Our imports last year were about 21 percent below where they were in 2001," Minert said.

He said there has been a rebound, but not as large a rebound as expected.

"Our beef imports from Canada have dropped off significantly in response to the opening of the live animal trade," Minert said. "The bottom line is our total beef imports into the U.S. are down significantly compared to what they were back in 2005."

The U.S. produces high quality beef products, Minert said.

"You have to wonder with the change in the feed grain price relationship whether that will erode our comparative advantage in high quality meat production," Minert said. "Not so much here in 2007, but looking out five years or so, perhaps a decade or so. Is that going to effect change?"

He said that has to be a concern for the industry.

It's going to take an extended period of time to regain market share that the U.S. had prior to the report of BSE in the country, Minert said.

The long-run growth of beef exports, he said, will depend upon the income growth on the part of consumers in importing countries.

"We have ample evidence from around the world that as consumer incomes grow, consumers demand more animal protein in their diet, and that's the best thing that could happen for meat exports in general from the U.S., and beef in particular," Minert said.

He said there is some concern that other countries in the world might have a comparative advantage in cow-calf production.

"Has anybody been to a land auction lately?" Minert asked.

Land prices in the U.S. are going up.

"We are increasingly pricing ourselves out of the world market in terms of cow-calf production," Minert said. "We have a lot of demand for land in the U.S. that has nothing to do with the returns you can earn from a cow herd."

Over the coming decade, Minert said he can see some other countries moving to increase their cow herds.

Brazil, he said, is the key one despite their problems with foot and mouth disease.

"I do expect larger exports in 2007 versus 2006," Minert said, "but when you look at those for 2007 and 2008, they're not nearly as high as what we had back in 2003 and 2002. I think it's going to be an extended period of time before we get those export volumes back to what we saw in 2003."

The good news, he said, is that with imports coming down and modest growth in exports, net beef imports are coming down dramatically compared to 2005.

“That does reduce the beef supplies available to consumers at the retail supermarket level," Minert said. "That is positive from that standpoint, but not as positive as perhaps we'd like to see."

On the supply side, Minert said cow-calf returns above variable costs based on Kansas Farm Management Association data have shown an extended period of profitability.

"Normally, that would be encouraging pretty dramatic expansion to the industry," Minert said. "I think we were held back in 2006 by dry weather conditions, not only in Kansas, but in many of the key cow-calf states around the nation."

In the future, he thinks expansion will remain on hold because of concerns about higher grain prices and the impact that will have on feeder cattle prices.

The USDA's inventory of beef calves the end of February was unchanged from a year ago.

"The beef cattle inventory nationally is down about 100,000 head," Minert said.

He expects to see slaughter numbers come down slightly in 2008. He believes slaughter will remain essentially flat for the next couple of years.

Weights will continue to be a question, he said. Weights have come down in the past year.

"A lot of that is because of the winter weather we've experienced in feedyard country," Minert said. "Not only in Kansas, but in many cattle feeding parts of the nation."

The question is what is going to happen with weights on an annual basis, and what that will do to beef production.

"Our long-term trend," Minert said, "is to continually slaughter cattle at heavier and heavier and heavier weights.”

That is a very strong trend, he said.

"The question is, are we going to be able to offset that long-term technology trend with lower weights this year coming out of weather and high feed grain prices?" Minert said. "I think the bottom line is we've really got two things pulling in opposite directions. High feed grain prices encourage us to market cattle more quickly and at somewhat lighter weights, but the flip side of that is higher feed grain prices encourage us to place cattle on feed at heavier weights because we want to put as much weight as possible on cattle outside the feedyard, predominantly on forage based diets."

Cattle placed on feed at heavier weights traditionally are marketed at heavier weights.

Minert said he thinks weights on an annual basis this year will be slightly lower than last year's weights.

"Not as much as you might think," Minert said.

That would give a modest increase in beef production.

Looking at the weather impacts Minert is starting to see in the market, he said there's a chance the highs in annual slaughter cattle prices established in 2005 could be taken out. He said the market could approach $90 per hundredweight.

On the feeder side, though, the picture looks different.

Feeder cattle prices reflect higher feed prices.

"I see prices for seven and eight-weight steers coming down significantly," Minert said. "Our peak was in 2005 with our average number around $113 or $114. Last year's prices ratcheted down a little bit. I think the forecast for this year is going to be about $100 or maybe a little above $100."

He expects five to six-weight steer prices will follow a similar pattern.

"I see those prices ratcheting down as cattle feeders reflect those high feed grain prices," Minert said.

He said lightweight steers peaked at $131 or $132 back in 2002.

"My forecast for 2007 is for just a little over $110," Minert said. "Maybe $112 or $113."
 
Top