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Beef Under Pressure

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

Cattle Buyers Weekly

Absolute price has largely replaced relative value, as consumers make purchasing decisions based on how much protein they can buy for a dollar

SPAM and Mac & Cheese. If you believe the headlines, these are two of the hottest-selling food items right now in the U. S. That’s enough to upset anyone in the red meat industry, unless they happen to work for Hormel Foods or Kraft (who make the aforementioned products). But despite the doom and gloom news, Americans are still eating a mountain of beef and pork. Yet there are significant shifts going on. As the economic crisis deepens, consumers continue to trade down in their meat purchases. Absolute price has largely replaced relative value, as consumers make purchasing decisions based on how much protein they can buy for a dollar.

Beef demand is suffering as a result. Overall demand declined about two per cent in 2008 from 2007. But the decline accelerated in the fourth quarter from the third and continued to slide in the first quarter. A key factor is the amount of total meat and poultry that will be consumed. USDA’s latest forecast is for beef disappearance to be up 28 million pounds in 2009 from 2008. Pork disappearance will be up 519 million pounds while broiler and turkey disappearance will be down 118 million pounds. So beef will face even more competition from pork.

Beef processors thus face a market environment that is more challenging than forecast only three months ago. They will somehow have to sell their products at a price that attracts consumption yet allows them to maker a profit. 2008 was surprisingly profitable. Margins the first two months of 2009 were positive but then turned negative. Conditions will remain challenging throughout 2009 so margin management and cost reductions will be more vital than ever.

Packers have also seen considerable erosion in byproduct values. These were 45 per cent lower the second week of March than for the same week last year. Most of the decline has come in hide values. A steer butt branded hide that week sold for $29 versus a high of $64 in the summer of 2008, reflecting a global glut in hides and weak leather demand. The value averaged only $5.88 per cwt. the first week of March, which meant $61 per head less than a year earlier. By-product values are how packers cover their variable costs. That’s why beef margins went red in early February when boxed beef prices fell, even though packers bought cattle cheaper.

Meanwhile, the industry fears it has a “loose cannon” in its new agriculture secretary, at least regarding mandatory country-of-origin labelling (MCOOL). Tom Vilsack stunned the industry in February when he told them he wanted them to voluntarily agree to follow stricter guidelines on MCOOL. These include: a label to include where an animal was born raised and slaughtered; labelling of processed foods, including cured, smoked, broiled, grilled and steamed; a narrowing of the time that ground beef makers can hold inventories for labelling purposes from 60 to 10 days. The first request in particular galvanized Canadian groups into action, and led to some firm words from the U. S. Trade Representative’s Office to USDA regarding possible trade retaliation. Companies so far have ignored his request.

Vilsack wasn’t done. While addressing the annual convention on March 9 of the National Farmers Union (a strong MCOOL supporter), he reportedly suggested MCOOL is an important part of a U. S. food safety program. That’s despite the fact that USDA in its final rule on MCOOL specifically states that the labeling program is not a food safety program. One can only wonder if Vilsack’s woeful ignorance of MCOOL will cause any lasting damage with one of the U. S.’s most important trading partners.

Cattle Buyers Weekly covers the North American meat and livestock industry. For subscription information, contact Steve Kay at P. O. Box 2533, Petaluma, CA 94953, or at 707-765-1725, or go to www.cattlebuyersweekly.com

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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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