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A look back at the cattle market in ’04

As one year ends and another begins, many of us pause for reflection. It’s been a year and some days since “The cow stole Christmas.” I’m referring to the dairy cow in Washington State that was confirmed positive for BSE. Eric Davis, past President of the National Cattlemen’s Beef Association, summed it up best when he told me, “The earth shifted a bit on December 23, and the impetus is there to make some changes and get on down the road. And I think it will happen.”

We did make some changes and get on down the road. In June, USDA implemented an intensive national BSE testing program. The program, according to USDA, is a one-time effort designed to provide a snapshot of the domestic cattle population to help define whether BSE is present in the United States, and if so help calculate at what level. To date, around 153,000 cattle have been tested through this program. There have been no positive test results.

The discovery of a BSE-positive cow in Canada on May 20, 2003, had awakened many in the industry to the possibility that BSE would indeed be found in the U.S. cattle herd, but for the most part, we were comfortable in our little world where BSE existed only outside of the U.S. Prior to that December 23 announcement, fed cattle prices were in the low to mid 90’s.

Dave Weber, Director of Research at Cattlefax explains, “We had started the month over a dollar. By the week before Christmas we were down to 93, so we were losing ground. We had worked our way past that short-term supply hiccup that we had and were starting to see more fed cattle coming into the marketings. We were already in a downward trend for fed cattle prices. When the event happened, it threw a wrench into our export market, but really didn’t affect our domestic consumption at all.”

Cattle Prices went from 93 dollars the week before the BSE confirmation, to an average of $84 the week it was announced. By the first week of January, prices were around $74.50. It took $15 out of the market nearly overnight. By the end of January, we were back up above $80, and trading up to $91 the first week of May. “By the end of March, Mexico was buying beef from us. It took a couple of months to get through the initial market reaction,” said Weber.

“U.S. consumers didn’t miss a lick in terms of consumption. The biggest challenge we had was the imbalance between supply and the missing part of foreign demand. The packing segments just reduced production levels right at 10%. They knew what their export sales were going to be, so we knew where there was going to be a foot-hold for the market,” said Weber.

Because of the BSE event, packers have not been able to export some of the variety meats. Tongues that were worth $12 to $14 per head to Japan and Korea, plus the freight to get them there, are now worth less than $1 per head. Put that into perspective by calculating that 60 – 70% of the over 28 million head of slaughter cattle tongues had been exported prior to the BSE event.

Weber remains optimistic about the future. “First quarter fed cattle prices are forecast in the mid to upper 80’s. Domestic consumption is on a great pace. There is some hope that by second quarter we’ll be able to ship product to Japan. Cattle coming out of feed yards in late March and early April will have birth date verification, so will be eligible to ship.”

He also believes the Canadian border will open early in the second quarter. Weber says U.S. feeder cattle and fed cattle markets will feel the impact. There have been problems getting cows slaughtered in Canada and they have a record calf crop on the ground. “We anticipate 300,000 to 400,000 head of feeder cattle come across the border.” Weber says, “We are expecting up to 600,000 fed cattle will come across the border during the year.”

Canadians have increased their packing capacity since we closed our borders to them. They will be slaughtering more of their cattle in Canada and shipping us the beef. In a normal year (one without a BSE event) 65% of Canadian beef and cattle production is exported, with about 80% of those exports coming into the U.S.

We will need to decide if we want cattle that we can add value to here in the U.S., which would help keep our plants and feed yards operating more efficiently; or do we accept boxed beef product and keep some of our fabrication lines utilized at a higher efficiency rate. Because of the BSE event, we have lost a lot of packing capacity here in the U.S. Tama, Iowa, and Greeley, Colorado are two major plants that have felt the impact.

Overall, without domestic demand for U.S. beef, we could be looking at $9 cull cows, like some producers I know in Canada have been. As I reflect on this past year and the impact of BSE on the U.S. cattle industry, I am grateful that my beef check-off dollars helped finance contingency plans that had been in place for some time. Perhaps the efforts of the Cattlemen’s Beef Board Issues Management and Public Opinion group were motivated by the possibility of finding foot and mouth disease here in the U.S. instead of BSE, but the bottom line is, they were prepared. Survey data on consumer confidence taken the first week after BSE was discovered in the U.S. showed that 87% of U.S. consumers believed U.S. beef was safe. That consumer satisfaction has increased into the 90-plus percentage range, and remains constant. You have to wonder where we’d be without research, promotion and education.