Rural delivery: US beef prices likely to have hit their peak

By MICK CALDER*

After wallowing in the doldrums for most of last year, United States beef prices took off in the first six months of the millennium.

The market improved on the strength of the buoyant economy, increased demand and recovering export prospects in Asia - even though beef production reached record levels last year. It has now peaked.

Wholesale prices for US choice beef in the first half were up 15 per cent on a year ago, which was reflected in the prices for feeder and slaughter cattle. They have fallen back recently but are still 5 per cent better.

Imported beef prices improved in concert and the drop in the US/NZ exchange rate has pumped up the translation back to NZ dollars.

The stronger market for all meats caused a flurry of speculation as to the reasons, and more importantly, whether the higher levels might be sustained. These ranged from the conventional analysis of the supply and demand conditions and extended to more exotic explanations such as the resurgence of interest in high-protein diets.

US beef production reached 11.96 million tonnes last year, according to the US Department of Agriculture.

This upward trend continued in the first half, when output was up 2 per cent.

Conventional wisdom would suggest that increased supply should have dampened the price rises earlier. The rule seems to have kicked in now, with prices easing in the last few weeks.

The herd liquidation that began four years ago and the consequent rise in cow slaughter has pushed beef production up, although there are signs that the liquidation phase is abating.

Even so, higher feedlot placements and heavy liveweights will continue to drive up supply projections for summer. Falling grain prices will also contribute.

Increased consumption fuelled by the boom in the US economy could in part explain the beef price rise.

Consumption has grown in the last two years, reaching 31.43kg per capita last year.

The Agriculture Department says consumption hit 15.8kg a head in the first half of this year.

A spate of manufacturers recalling ground beef following the discovery of E coli in test samples may have tempered this rush. Even so, the analysts remain confident that strong demand will continue.

Improving demand for beef in Asian markets, especially Korea, has also boosted the strong growth in US prices. Exports to Korea doubled last year, albeit from a low base in the previous year, and the rise has continued this year.

The Russian and Mexican markets have also taken off, while Japan is picking up the pace.

And then there are the diet fads. The resurgence of the Atkins, Zone, Sugar Busters and other diets promoting protein rather than carbohydrate as a way to lose weight may well be the X factor.

Such diets are said to suit Americans who like steaks, and bacon with their eggs. Even former heavyweight boxing champion George Foreman has got in on the act by endorsing an indoor "lean, mean, fat-reducing grilling machine."

Dr Atkins sells his new diet book (his fifth since 1972) with the claim that his diet makes people feel better than low-fat diets.

New Zealand farmers will be pleased to know that he advocates "dieting" on the best foods such as lobster and rack of lamb.

Nutrition experts warn that the side-effects of such diets can be disturbing: bad breath at both ends, tiredness, constipation, kidney stress and high cholesterol. Is that not always the way?

* Mick Calder is an agribusiness consultant and formerly Meat Board secretary and chief executive of Freesia Meats.