2004 US Meat Demand Very Strong Despite Export Disruptions - US - Descriptions of demand in the U.S. for meat and poultry so far in 2004 include "phenomenal" and "off the charts," and some market analysts have said measuring the demand has been difficult due to the many factors involved.

Chuck Levitt, senior livestock analyst with Alaron Trading Corp., said demand for meats during the first quarter was very unusual. "We'd have to go back years and years and maybe even then we wouldn't be able to find a period of (strong) demand as it has been in the first quarter of 2004."

Despite having about 90% of the nation's beef export markets closed on Dec. 23 due to a case of bovine spongiform encephalopathy, or mad-cow disease, and nearly 40% of the county's trading partners having shut off imports of U.S. poultry following cases of avian influenza in four states, wholesale prices for beef, pork and chicken currently are all well above a year ago.

Much of the credit for the increased demand is widespread popularity of high-protein, low-carbohydrate diets. Increased pork exports also contributed to demand in that sector.

The number of people in the U.S. that are on some form of low-carbohydrate diet has been estimated from 30 million to 34 million, said Glenn Grimes, agricultural economist with the University of Missouri.

Wholesale choice grade beef prices for January-March averaged 6.5% above a year ago and select prices were nearly 5% higher. Beef production was down 9.8% according to the U.S. Department of Agriculture, compared with a year ago and basically offset the lost export sales. In 2003, about 10% of the U.S.' beef production was exported. Beef production was down from a year ago through the first three months due to reduced supplies of cattle available to packers and from lighter slaughter weights. Contributing to the smaller supply is the U.S. ban on imports of live cattle from Canada which was imposed May 20, 2003 after a case of mad-cow disease was found there. During the first quarter of last year, Canada shipped 326,000 head of cattle and feeder cattle to the U.S.

Wayne Purcell, agricultural economist at Virginia Polytechnic Institute, said a significant driver for the increase in demand for beef is new product innovation. He said new precooked, microwaveable products are generating more sales to people who want and are willing to pay for the convenience these products provide. He also said the improvement in the beef products is probably more pronounced than in pork or chicken because the beef industry had been faced with variability and lack of consistency of its products in the fresh state.

Purcell also said the evidence seen in the first quarter suggests that beef demand is still good and should carry over into the second and third quarters. However, people in the U.S. are going to have to eat more beef as long as the borders remain closed and less beef is exported, he said.

Grimes said according to his demand data, using 1985 as the base year for all three categories with index values of 100, beef demand in 2003 was at 79.03, up considerably from 70.9 in 1998. Pork had a demand index of 95.3 in 2003, up from 91.8 in 1996. The index for broiler chicken in 2003 was 138.1, compared with 123.5 in 1996.

Wholesale prices for chicken are up from a year ago for the first three months despite broiler slaughter being slightly above a year and the fact that about 38% of the nation's export markets were shut down for the last half of the quarter after some cases of avian influenza occurred in four states. Wholesale prices for chicken breasts last week were up about 70 cents per pound, or 47%, from a year ago. Leg-quarters, which make up much of U.S. chicken exports, were up about 13 cents, or 65%, from a year ago.

Hog prices through the first quarter of 2004 averaged about 24% above the year-ago first quarter average. This occurred despite U.S. hog slaughter having challenged the record pace set for that quarter in 1999.

Grimes said the higher-than-expected hog and pork prices in the first quarter were driven by a combination of strong consumer demand and more inelastic demand for hogs at the packer level. He said until the last five years, the rule of thumb was that for every 1% change in supply there would be a 2% change in price in the opposite direction. However, in the past five years or so, this has widened from 2% to about a 5% change in price in the opposite direction. Grimes said elasticity of demand refers to the relationship of a given change in supply and price. The more the price changes in relation to the change in supply, the more inelastic the demand is.

Source: eFeedLink - 6th April 2004