Low Cattle Inventory Cushions Blow from BSE Confirmation

AUBURN, Jan 12, 2003 --- Prices for cattle futures contracts have dropped significantly since late December when bovine spongiform encephalopathy was confirmed in a Washington state dairy cow.

But low cattle inventories and beef supplies have softened the blow to prices according to Dr. Walt Prevatt, an agricultural economist with the Alabama Cooperative Extension System.

“Prices have dropped about $200 per head since the end of December,” said Prevatt.  “But cattle inventories, which are at the lowest level in 14 years, have cushioned the price blow.  Live cattle prices remain above the five-year average because of the reduced beef supply.”

It is estimated that the single BSE-positive cow in Canada cost that nation’s cattle industry about $2.5 billion.  Prevatt said the U.S. inventory is about six times greater than Canada’s.  He added that if beef prices continue to be depressed, the loss to the U.S. cattle industry could easily exceed Canada’s losses.

Prevatt said the nation is approaching the end of a cattle cycle.  He is optimistic that confidence among export partners will be regained before cattle inventories begin expanding again.

“I am hopeful that export partners such as Japan, Mexico and others will regain confidence in American beef because of USDA’s aggressive efforts to ensure safe beef products for us all,” he said.  “The sooner we can begin to ship beef abroad, the better it will be for beef prices.”

The United States exports about 10 percent of its total beef production.  This beef will be consumed in the domestic market until the export bans are lifted. That is why Prevatt said it’s vital to keep American consumers confident in the meat in the grocery stores, in restaurants and in their homes.           

“It appears that domestic consumer confidence in the safety of American beef remains high, and that’s good news,” said Prevatt.  “Some market analysis of fast food chains in the Pacific Northwest show hamburger sales holding steady.”

Another positive for beef prices is that the majority of the 2003 feeder calf crop had been sold when news broke about the BSE case in Washington state.  

“About 75 percent of the 2004 calf crop will be born in the spring and be marketed in the last two quarters of the year,” he said.  “Hopefully, market prices will have an opportunity to recover by then.”

Across Alabama, stockyards are reporting decreased numbers of animals brought to sell at regularly scheduled auctions. Many cattle producers wanted to observe how the local market would react to this situation.

Prevatt said that is not surprising.

“Producers are going to try to hold on to some animals and hope for an improvement in price,” he said.  “But they will have to make a decision later on down the road on when to sell.  Most producers cannot afford to hold selling animals indefinitely.”

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