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NCBA Convention: Beef Industry Seeks Responses to Global Economic Pressure

30 January 2009

US - Unprecedented financial losses in U.S. and global markets have hit beef demand and prices, but industry advisors see prospects for recovery starting late this year.

“The challenge this industry faces is unlike any it has faced previously because the factors are external, so you have less control over the outcome,” market analyst Andy Gottschalk, founder and owner of HedgersEdge.com, told cattle producers at the 2009 Cattle Industry Annual Convention. According to Roy Leidahl - reporting for TheCattleSite - the collapse of financial markets last year wiped out $11 trillion in equity held by American consumers. The drop in energy prices since last summer is saving Americans $1.3 billion per day in energy costs, but recovering the $11 trillion equity loss from those energy savings would take more than 23 years, said Gottschalk.

In the cattle industry, hide and offal revenues dropped $80 per head since last summer, and variety meat exports value dropped another $41.46 per head, said Gottschalk. U.S. domestic beef demand has retreated, too, and he expects average U.S. retail beef prices to fall 5 per cent in 2009. He reminded cattle producers that domestic demand still provides 94% of their market.

Analysts at the advisory service Cattle-Fax said the export impact on prices is major. “Japan is a huge opportunity,” Cattle-Fax executive Randy Blach said. If he could focus on only one factor to improve beef markets, he would focus on Japan.

Brett Stuart, another Cattle-Fax analyst, said that if Japan would raise its beef source cattle limits from animals 21 months of age up to those 30 months of age, U.S. exports to Japan would rise to 95 per cent of their level before the discovery of a case of bovine spongiform encephalopathy in the United States at the end of 2003. That increase would add about $4 to the market for live U.S. fed cattle, he said.

For 2009, Cattle-Fax analysts expect cow-calf producers' margins will stay squeezed as they were last year, stockers/ profits will decline, and feedlots' profits will be slightly positive.

“We've been through tough times before,” said Blach. “I think the biggest struggle we have today is our attitudes.” The U.S. beef industry will continue to consolidate and will lose excess capacity this year, but for the longer term, he said, “We do have a heck of a supply bull (market) building.”

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