OTHER THINGS THAT IMPACT BEEF PRICES
P.J. Rathwell, Extension Ag Economist

As agricultural economists we like to talk about supply and demand and its impact on the price of a product.  In beef cattle this primarily refers to the inventory of beef animals (calves, feeders and fat cattle) and the demand for beef at the packer, retail or consumer level.  We don’t always remember that there are other markets that indirectly affect the price we receive as beef producers.

One of the most important of these factors over the last few years has been beef export. The beef export market is small relative to the domestic market but its impact on producer prices has been well documented over the last few years.  Exports through the first quarter of 2001 have been 12% smaller than a year ago totaling 569 million pounds.  It has been suggested that the decline was due to smaller total beef production during the first quarter, higher beef prices and a strong US dollar.

Beef production was reduced in the first quarter of 2001 due to poor weather conditions in the Midwestern feeding areas.  The reduction is meat supplies increased both domestic and foreign retail beef prices.

The strength of the U.S. dollar against foreign currencies also reduced the buying power of many foreign countries.  The currency of our major beef-importing partners has weakened considerably over the last few years.  Japan’s Yen has lost 15% of its value in the last year alone.  This has made US beef more expensive for Japanese consumers and has given an advantage to Australian beef in the Japanese market.  The same situation has occurred in the Korean market.  The Korean Won’s value is down 16% from the 2000 level and U.S. beef exports are down 10 percent.

Mexican exports were up three percent in the first quarter of 2001.  This is because the Peso has shown a slight (1%) growth during the last year.  This has kept prices for U.S. beef in Mexico “somewhat” more reasonable.  In addition, Mexico’s purchases are generally for the less expensive “Select” grade while Japanese and Korea markets favor the more expensive “Choice” grade. 

Don’t look for a major change in the U.S. beef export market in the near term.  Continued high beef prices in the U.S. due to smaller calf supplies and a stronger Dollar will reduce export opportunities and make U.S. beef less competitive in the world market.

On the other side of the coin a stronger U.S. dollar and smaller cattle supplies will likely increase imports of foreign beef into the U.S. Mexican shipments of feeder cattle will increase (probably over 500,000 head this year into southern plains feedlots).  And, imports of South American and Australian beef products will increase in an attempt to fill U.S. demand for processed beef products.

Another market that significantly affects producer prices and overall farm returns is the price of “beef trimmings.”  Packing plants use trimmings for hamburger and other processed meats.  Fed cattle carcass trimmings make up a large part of this hamburger and processed products market.  Slaughter cow and bull carcasses are also competitors in this market.

The trimmings market has been very active through the first quarter of 2001.  Prices for various grades of trimmings have averaged between 9% and 30% above 2000 levels.  Fast food promotions have been given credit for much of the increase in demand.  Shorter first quarter supplies of fed cattle have also supported prices.  But, with increased slaughter levels this summer, trimming prices are likely to soften.

Cow and bull slaughter rates are about 7% above 2000 through the first quarter of 2001.  Smaller fed cattle volume likely created a spillover demand for the lean trimmings generated in the cow and bull market.  Increasing summer supplies of fed cattle will also slow this demand.

Also, helping to support overall cow prices are producer expectations about the longer-term profit prospects of the U.S. cattle market.  Producers, in areas of the country that have moisture, will be keeping cows with any possibility of calving this year.  Therefore, cow slaughter levels should decline in 2001.  This should provide general to cow prices and support the trimmings market despite the expected summer fed cattle glut.  Overall, the trimmings market in 2001 should significantly support cattle prices and producer returns.