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Prime Cuts – for Feb. 14, 2011

Guess what the U.S. beef industry’s most valuable product is? A pot roast? A New York strip steak? No, it’s ground beef. That’s because ground beef in various forms accounts for nearly 50 per cent of all U.S. beef consumption. It is the industry’s most versatile product, and more importantly, is the product that can consistently compete on a dollar-per-pound basis with most chicken and pork products.

Ground beef will be the key price driver in the U.S. beef complex in 2011 because that’s where the shortage of overall beef supplies will be. Manufacturing supplies will be even tighter than in 2010. So the battle will intensify between retail and foodservice buyers for this beef. U.S. fed beef supplies look like being equal to last year into the third quarter. The only possible decline in beef production in the first half of the year will come in non-fed beef. That’s assuming that U.S. cow slaughter throughout the year is smaller than in 2010.

If this occurs, more fed beef primal cuts will go into the grinder. Ground beef from these cuts last year set a record in terms of the percentage of all ground beef sales. Ground chuck, ground round and ground sirloin accounted for 34 per cent of total ground beef sales in 2010. This compared to 31 per cent in 2009 and 26 per cent to 29 per cent in preceding years. The nine blended categories from ground 73s to 93s accounted for the other 66 per cent of all ground beef sales.

Another factor is whether Australian exports to the U.S. will recover after declining 26 per cent last year from 2009. Devastating floods halted most beef processing and all exports from Queensland in January. As a result, imported Australian 90CL boneless beef sold the second week of January at a record US$2.01 per pound. Reports though suggest that Australian exports might rebound in a few weeks.

U.S. cow slaughter in 2010 was 6.437 million head, up 4.8 per cent from 2009. This increase helped offset the 295-million pound decline from 2009 in beef imports. USDA says imports this year will increase 114 million pounds from last year to 2.445 billion pounds. But analysts say 2011 cow slaughter might be down more than eight per cent to 5.9 million head. Canadian cow and bull exports to the U.S. will play an increasingly important role in supplementing domestic supplies. Canadians sent 196,000 cows and 35,000 bulls south last year, about the same numbers as the year before.

Overall lean beef supplies in 2010 were down from 2009 because of the import decline. They will fall again this year to their lowest level since 1999. If the industry wants consumers to eat the same amount of ground beef this year than last year, it will have to put more fed beef through the grinder. The increased use of primal grinds has narrowed the price spread between them and blended grinds. The widest spreads were in 2004, 2005 and 2006. Some of the narrowest spreads have occurred in the three years since then.

Retailers consider primal grinds to be a premium product but better value than blended ground beef. So they will sell a bigger percentage of ground beef from primal cuts if they can. Retailers will also raise their ground beef prices soon to reflect record high wholesale prices, and because consumers will absorb such price increases better than the expected increases on more expensive beef cuts. But if there isn’t an increase in lean beef imports this year, current wholesale prices for all grinds will appear to be cheap. Whatever happens, Canadian producers can look forward to even higher U.S. prices for their cull cows and bulls.

CattleBuyersWeeklycoverstheNorthAmericanmeat andlivestockindustry.Forsubscriptioninformation, contactSteveKayatP.O.Box2533,Petaluma,CA 94953,orat707-765-1725,orgoto www.cattlebuyersweekly.com.

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ANorthAmericanviewofthemeatindustry.SteveKayispublisherandeditorofCattleBuyersWeekly

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Whatever happens, Canadian producers can look forward to even higher U.S. prices for their cull cows and bulls

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A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.

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