Meat + Poultry - December 2004 - 23

2005 Outlook

Red meat

in 2004. Conversely, beef prices might be a little higher, depending
on the level of exports.
Resumption of trade with Japan, South Korea and other export
markets is the biggest demand variable for beef. The biggest supply
variable is the reopening of the U.S.-Canadian border to cattle from
Canada and more beef. There's also the question of whether thirdcountry suppliers like Australia, New Zealand and Uruguay will send
as much beef to the U.S. as they did in 2004. Uruguay in 2004 may
ship as much as 150,000 metric tonnes, with up to 130,000 tonnes
of that from quota manufacturing beef. In 2005 it looks set to export
even more.
As for pork, it's a given the U.S. industry will continue to produce
more of "the other white meat" in 2005. After the U.S. Dept. of Agriculture published its Quarterly Hog and Pigs Report this past September, analysts forecast a record amount of pork in 2005.
That was before the U.S. Dept. of Commerce in mid-October
slapped a 14-percent levy on most live hogs imported from Canada. A final decision isn't expected until March 2005, but whatever
happens, either fewer Canadian hogs will come south as in 2004
or more pork will come south. So the available supply of pork in the
U.S. will still be higher.
The timing of resumed U.S. beef exports to Japan and South Korea
and at what volume dominates the factors that will affect beef's outlook.
In early November, the U.S. and Japan announced their agreement to
resume two-way trade in beef. U.S.D.A. and some industry groups had
predicted the first U.S. shipments would go to Japan before the year
ended. Others, however, said this was far too optimistic and that the
first shipments wouldn't begin until late in the first quarter.
The age factor
Whenever exports begin, they will likely be a trickle compared to
the average 7,450 tonnes of beef and beef variety meats that were
shipped each week in 2003. They may not begin to pick up until
August, depending on whether Japan agrees to relax its initial requirements for age verification of cattle to see if they are less than
21 months of age.
The key to export volumes is whether the U.S. can persuade Japan to accept the physiological verification of age through measurement of bone density in carcasses, known as ossification. At press
time, the agreement was confined to the use of production records
to verify age. The Agricultural Marketing Service was conducting a
study to attempt to prove a correlation between age and physiological characteristics.
Should Japan reject the use of ossification, only a small percentage of cattle will be eligible under U.S.D.A.'s Beef Export Verification
program. Only 10 percent to 12 percent of all U.S. slaughter cattle
are said to have verifiable birth records and some of these are over
20 months of age when slaughtered. There's a disparity between
what U.S.D.A. estimates is the number of under 21-month-old cattle
slaughtered annually and industry estimates.
J.B. Penn, U.S.D.A. agriculture undersecretary for farm and foreign agricultural services, said during an Oct. 23 Tokyo press briefing
that 81 percent of the 35 million cattle slaughtered each year are 20
months or younger. But he qualified that figure by saying the other
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MEAT&POULTRY

19 percent are cows and bulls. In a later Q&A, U.S.D.A. officials said
estimates suggest that about 70 percent of the 35 million are steers
and heifers 20 months or younger.
Industry estimates say about 27 million fed steers and heifers will
be slaughtered commercially in 2004. Of these, about 70 percent
or 19 million head will be under 21 months, with 30 percent over 20
months. The 30 percent figure is what packers, meat scientists and
others are saying.
If only 10 percent to 12 percent of the under 21 month cattle have
records that verify age, less than 2 million steers and heifers will initially be eligible for export. Then there's the question of what amount
of beef from these cattle will go into U.S. domestic programs that are
based on source verification and what percentage of the carcass will
be left over for export.
Another question is at what point will it be economic for major
U.S. packers to segregate cattle in large plants according to whether the cattle are eligible for export or not? Most major packers produce between 2,000 and 3,500 stock-keeping units. They already
have to segregate all beef items from cattle deemed through dentition to be over 30 months of age. Segregating beef from 20 month
and under cattle theoretically doubles the number of S.K.U.s. Not
even the most modern plant could handle such a huge product mix
without costly modifications.
As for the reopening of the U.S. border to Canadian cattle and more
beef, there was speculation in early November that U.S.D.A. was going to publish its long-awaited rule to treat Canada as a minimum-risk
B.S.E. country. This rule is expected to allow Canadian feeder cattle
and slaughter cattle less than 30 months of age to start entering the
U.S. again for the first time since May 20, 2003. The speculation came
because U.S.D.A., in an update report to the U.S. District Court in Billings, Mont., said "a draft final rule is nearing completion and will soon
be submitted for clearance by U.S.D.A. agencies."
This raised some concerns in the futures market, but it seems that
actual movement of cattle could be several months away. The department revealed it still had to submit the rule to the White House's
Office of Management and Budget. That agency theoretically has 60
days to examine the rule and then return it to U.S.D.A. Even if it returned it within 15 days to 30 days, it seemed unlikely the rule would
be published before early- to mid-December.
Then there is a 60-day period for congressional review and for further public comment. So U.S.D.A. might not publish a final rule until
sometime in February. It might then take another 30 days for all the
protocols to be satisfied before cattle begin moving south.
The big question then is how many cattle will come south? "There
is a huge difference in the situation in Canada now compared to last
year at this time," says livestock analyst Bob Price, president of North
American Risk Management Services, LaGrange, Ill. "This past year
I would have bet that a million head of feeder cattle would have
crossed the border the first 12 months after it was reopened.
"However, with expansion in slaughter capacity already taking
place in Canada, the numbers will now be much smaller. There will
be some slaughter steers and heifers cross but again not as many as
there would have been a year ago. Part of the slaughter cattle crossing may just replace a part of the beef that is currently flowing south

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Meat + Poultry - December 2004

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