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High notes for the beef business

Grinding beef for turning into hamburgers will be hard to come by this year. Over half of the beef consumed in the U.S. is in the form of a fast-food burger, and it takes a lot of cull cows to satisfy that demand.

If it rains just a little this year and herd rebuilding begins, there will be a shortage of grinding meat. McDonald’s will not go without, which means imports from Australia will increase and more beef chucks will make their way to the grinding tub. CattleFax says the price for cull cows will set a record in 2013 – at about $88 per cwt, up 10% from last year.

Bred cows and heifers will also sell for a premium this year, because more producers want to add cows (rainfall permitting) in light of record calf prices. CattleFax thinks young bred cows could average $1,600 each at sales this spring – or about $300 more than last year.

Japan back in beef fold

It took nine years to do it, but Japan is back as the number one foreign customer for U.S. beef. They crossed the line to take over the lead from Mexico and Canada last year, and that will expand in 2013.

In 2003, Japan completely shut off beef from the U.S. after bovine spongiform encephalopathy (BSE) was found in a single cow. They reopened the market in 2006 and started taking beef from animals 20 months of age and under. (The risk of BSE increases as cattle age.)

Exports have slowly rebounded since the ban. According to the U.S. Meat Export Federation, 2012 U.S. beef exports to Japan jumped 18% in value over 2011, reaching $1.03 billion. However, export volume (152,763 metric tons) was slightly lower. Compare that to exports of 375,455 metric tons with a value of $1.4 billion in 2003.


Expanding animal age

In February 2013, Japan expanded to animals up to 30 months of age. That’s significant, because a lot of U.S. prime slaughter animals are in the 20- to 30-month-old range.

It’s also an important step toward lifting the age-based restriction altogether and further increasing opportunities for U.S. ranchers to boost exports. As the beef gate to Japan is opened much wider, exports could grow as much as 27% from last year – or 120 million pounds, say CattleFax beef industry economists.

One product that this impacts immediately is beef tongues. They go for a premium in Japan. CattleFax says the average U.S. price for beef tongues last year was $2.40 per pound. In Japan, the wholesale price is about $5 a pound. All by itself, this expanded market for tongues to Japan could add $1 per cwt to beef hide and offal values.

Exports saving us

Japanese demand for U.S. beef is a good thing. In total, 11% of U.S. beef production will go for export this year. It is making up for stagnant or falling domestic demand.

Wholesale beef demand, say CattleFax charts, has been slowly creeping up from the 2009 lows early in the recession. It looks like 2013 is going to bring that streak to an end. Per capita income is projected to decline slightly, and it will take beef demand with it.

It may be that rising supermarket prices for beef have finally hit a ceiling. CattleFax’s Mike Murphy compares it to $4-per-gallon gasoline. In recent price run-ups, $4 is the point at which consumer resistance kicks in, and gas usage actually drops. “Watch that as you think about beef,” he says.

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