Reuters | By MATTHEW LEWIS AND JERRY BIESZK June 2, 2003
Spurred by a scare over mad cow disease in Canada, demand for U.S. beef has soared and profits for U.S. beef packers stampeded to record levels, cattle and beef market analysts said May 30..
Wholesale beef prices have also hit record highs, with the situation likely to last until the United States reopens its border to Canadian beef and cattle.
The United States banned those Canadian imports on May 20 after a cow in Alberta tested positive for BSE, or bovine spongiform encephalopathy. Mad cow disease devastated Britain's beef industry in the 1990s. The human form of mad cow has killed or sickened almost 140 people, most in Britain.
The United States has never had a case of mad cow disease discovered, and both domestic and foreign consumers appear to have gotten the message. U.S. beef exports ticked higher in the week ended May 22 --- including sales to Canada.
Japan, South Korea, China, Mexico, Brazil, Philippines and many other importers banned Canadian beef after the U.S. ban.
"We're not only having to supply the U.S., we're having to supply Canada now, and all the outside people who were buying from Canada," said Ann Barnhardt, analyst at HedgersEdge.com.
Canada exported 1.686 million cattle to the United States last year along with 503,141 tons of beef. With that pipeline of supplies suddenly shut, buyers have had to scramble.
"So we have this massive demand shock," Barnhardt said.
Cash cattle in the U.S. Plains has traded $1-2 higher per hundred pounds (cwt) since the May 20 ban. But beef prices --- and profit margins --- have simply gone through the roof.
The average profit margin for U.S. beef packing companies on Friday was an estimated $101.50 per head, according to HedgersEdge.com. That compares with $43.70 per head on May 20 and an estimated $76.80 as recently as Wednesday.
U.S. demand has been further boosted by the start of the summer barbecue season, traditionally marked by Memorial Day.
"It's retailers wanting to satisfy their regular customers at a time that beef demand is normally good because of the grilling season," said Chuck Levitt, analyst at Alaron Trading Corp. "So I think the scramble from the meat buyers is what led to this, not just the packers trying to gouge anybody."
The $101 estimated packer margin on Friday does not include certain packer costs, and the real net margin may be closer to $50 a head, several analysts said.
"It's not planned gouging by packers," said Jim Robb, analyst at the Livestock Marketing Information Center in Lakewood, Colorado. "Packers have been as surprised by events of the last two weeks as anybody has been."
With soaring demand, the price of wholesale beef has also skyrocketed. Choice wholesale beef rose to $149.32 to $150.07 per cwt on Friday, up $6.29 to $6.68 from a week ago.
"Retailers realized that probably 8 percent or so of the beef that we consume in the U.S. comes from Canada," Levitt said. "When we banned those I think the U.S. meat wholesalers, retailers and food service industry buyers all scrambled to meet their immediate needs and that sent the boxed beef composite to historic highs."
When Canada eventually convinces the world that its beef is safe and the U.S. reopens the border, cattle prices will fall.
"But I also think that a lot of corporate entities are looking at the liability that could potentially happen if they found more BSE in Canada, and so I think there's a quasi-permanent shift for a lot of people to move their business into the U.S.," Barnhardt said. "So I think this effect is going to linger to some extent."Reuters:
