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Cattlemen get good news at conference

Monday, March 8, 2010

Gregg Doud, chief economist for the National Cattlemen's Beef Association, used graphs and an engaging speaking style to keep the audience at the Beef Cattlemen's Conference in Monett fully focused at this year's event, which is sponsored by the Monett Chamber of Commerce. [Times Photo by Murray Bishoff]
Beef producers may be headed toward an exceptional year, provided a number of market forces beyond their control work in their favor. Gregg Doud, chief economist for the National Cattlemen's Beef Association had an upbeat report to give to the 122 people attending the 41st annual Beef Cattlemen's Conference in Monett.

Doud said the major forces determining what will happen in the year ahead come from the globalization of the food industry. Some signs are positive. The South American soybean crop appears to be headed for a record. Since the price of corn is the price of soybeans divided by 2.5, a plentiful soybean crop will lead to lower prices for both soybeans and corn. Good rain supplies last year left room for optimism about the 2011 corn crop as well.

"We think, in crunching the numbers in February, buying corn for feeder cattle, that we [cattlemen] actually made money for the first time since 2007," Doud said. "Beef exports are up for the first time in years. The price of cattle should be significantly higher than what it is, because of the [weak] economy."

With no job growth in 26 months, 12 million jobs short of full employment and a $12 trillion loss in household net worth since the economic downturn started, Demand for choice beef is still waning, especially with the restaurant sector seeing less business, Doud said.

At the grocery store meat case, the fight over which meat to buy is brutal, especially when other meat-producing industries are struggling with low demand. Doud said last year pork was practically being given away. Sustaining international demand becomes more critical to the health of the beef industry.

For example, the Russians faced a catastrophic economic meltdown last year, so much so that the average person is having trouble buying food. While that may be far away, one quarter of the chicken quarters produced in the United States, about 200 million pounds a month, are sold to the Russians.

"If we can't sell them to the Russians and that chicken stays home, it could throw all I've said out. We have got to get those leg quarters out of here," Doud said.

A few years ago, the Russians imported more beef than the U.S. When the Russian economy melted down, the Australians bought up the beef imports the Russians would normally have consumed and sold them to Korea and China. Doud said U.S. beef sales in the Greater China arena, including China, Hong Kong, Vietnam and Korea, is now three times the levels before the bovine spongiform encephalopathy (BSE) outbreak.

One of the biggest beef markets is Japan. Since the BSE scare, the Japanese put restrictions on their beef imports. Documentation that cattle are under 20 months in age and have source documentation costs $3 more per animal to the American cattleman. The premium cost provides access to the Japanese market, Doud said, and American producers need to adjust to that.

In addition, Doud said the Japanese are limiting their purchases of American beef, because they cannot get it year round. The practice of cattlemen only breeding in the spring has put a stranglehold on market sales.

American producers are adjusting slowly, Doud said. Providing a year-round supply to the Japanese would mean an extra $1 billion in annual sales, translating to an extra $3 per hundredweight in the sale price of beef to producers.

Failures among competitors for American beef has fueled Doud's optimistic outlook. The Canadian hog industry has been destroyed. Australian beef processors have gone broke. American processors are the only ones making money. Sixty percent of New Zealand beef comes from dairy cattle, a limited supply.

Weaker international markets have a downside for U.S. producers as well, Doud said. In 2008, Mexicans bought $500 million in beef hearts and livers. With the economic downturn, the lowest third of people in the Mexican economy lost their income and cannot afford to buy even those meats.

Mexico has been selling 1 million head of feeder cattle to be grown in Texas then sold back to Mexico. Doud said the Texas cattle industry would not have developed without the Mexican business.

The Canadian cattle industry is shrinking two to three times faster than the U.S. supply. Canadians are now slaughtering their own cattle instead of sending them to the U.S. Doud feared that further reduction would lead to the closing of processing plants in the Northwest. Closed plants never reopen, and disassembly in the beef industry's infrastructure could have very serious consequences for years.

The beef cow inventory is now at a 30-year low, leaving 20 percent more capacity in packing plants than there are cattle. Doud advised putting a hold on heifer slaughters to keep herd numbers from dropping any further. Recent prices in Nebraska were running $1,300 to $2,000 for "black cattle," regardless of breed.

The 4 percent drop in demand in 2009 was the difference between $90 per pound and $87 per pound for cattle.

"If we move beef demand from 2009 to 2008 [levels], it's worth $140 a head on a finished steer," Doud said. "When this turns around, it's going to get crazy good."

Contrary to popular belief, the U.S. is still the top beef importer in the world. Doud said the hamburger industry depends on low quality imported beef that is blended with high quality U.S. cuts for the fast food market. American companies make 50 cents a pound on the combination. Other beef producers are needed to make the U.S. market work.

"You live in a global economy," Doud said. "It affects your business in Missouri whether you like it or not."

According to Doud, the fights in Washington over agriculture, including cap and trade legislation, were not a liberal versus conservative division, but more one of rural versus urban.

"These folks don't understand our way of life," Doud said. "Whose fault is that? What have you done lately to talk to them? We do such a poor job of that. We've got to do better."

Doud left the Monett conference for additional meetings at the National Cattlemen's Beef Association headquarters in Denver, Colo.

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