February 4, 2012

Dwindling herds, overseas demand drive up beef prices

For anyone who loves a good steak, a juicy burger or a nice Sunday roast, these are anxious times.

For anyone who loves a good steak, a juicy burger or a nice Sunday roast, these are anxious times.

Prices for beef, which have been climbing for months, hit a record high in December — an average of $5 a pound — and analysts predict they could climb 5 to 8 percent higher this year.

Beef prices are soaring for a number of reasons. Producers, who struggled with high feed costs and diminishing profits, began shrinking their herds roughly five years ago. Since then, demand from overseas markets has shot up — a record 11 percent of American beef went overseas last year, up from 8.7 percent in 2010.

In July of last year, the U.S. beef herd had dropped to its lowest point since 1958. Also last year, a drought in Texas and Oklahoma, the top two cattle-producing states, forced producers to cull herds. As a result, the number of cattle in the United States fell 2 percent from the beginning of 2011 to 90.8 million head, the United States Department of Agriculture reported last week.

“There’s not enough beef out there,” said Ron Plain, an agricultural economist with the University of Missouri. “This year, there’s going to be less beef, more people; the supply is going to be tighter, and that means more records.”

For the cattle industry in general, the numbers come as good news. Prices, per pound for a steer, have topped $1.70 of late, compared with about 95 cents five years ago. For the average 1,300-pound steer, that adds up.

“Times are good,” said Mike Miller of Cattlefax, a Colorado-based cattle industry research firm. “Our expectation is it’s going to be good for some time.”

But the good times for the industry have not come without some trials, and some work in courting overseas markets.

Since 1980, according to the U.S. Department of Agriculture, per capita beef consumption has plummeted 25 percent. In 2011, the average American consumed 57.6 pounds of beef, down 13 percent from a decade prior. This year the number is predicted to decline again to 54.1 pounds.

The reasons for the decline are difficult to isolate. But they include health concerns over the higher fat content in red meat, worries about humane treatment and links to environmental problems, including greenhouse gases — all of which have gotten a lot of attention in recent years.

The industry insists the American appetite for beef is still strong, while some analysts and researchers suggest the decline, at least in recent years, is simply because of the recession.

“These noneconomic factors are really tough to talk about,” said Scott Brown, a livestock economist with the Food and Agricultural Policy Research Center at the University of Missouri. “Frankly, when the consumer goes to the store or restaurant, it’s the relative price that’s driving their decision.”

Whatever the reason for the decline, the country’s cattle producers have helped compensate for it by making inroads into overseas markets, particularly in Asia.

“Worldwide consumption of meat and demand has increased,” said Jeff Windett, who heads the Missouri Cattlemen’s Association. “I think it’s just good business sense to expand market opportunities for producers.”

Overseas markets also embrace pieces of the animal that Americans typically don’t consume, bringing more dollars to American beef producers.

“Tripe, oxtail, tongue … some of those kinds of meat sell for a lot of money,” Windett explained. “It’s really creating a market for some of those variety meats and adding value to the carcass overall.”

Japan, a major beef importer, restricted U.S. beef in 2003 after an outbreak of mad cow disease but has since eased the barriers. With Japan a major trade destination again, American beef exports are poised to hit another record this year – nearly $5 billion in sales. China, which does not officially import U.S. beef, could be on the horizon.

“It spells a very bright spot for the U.S. beef industry,” Brown said. “There are just a lot of things on the trade front that look to be very positive.”

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