Economist tells cattlemen it will be tough in 2010

Eds: UPDATES with quotes from expert; ADDS background on industry, byline.

By ROXANA HEGEMAN

Associated Press Writer

WICHITA, Kan. (AP) -- A leading livestock market expert warned Kansas cattlemen Friday that the industry will continue to be tough and urged them to take advantage of any narrow profit margins they can find.

Randy Blach, an economist for CattleFax, spoke as the Kansas Livestock Association meeting here wrapped up its two-day annual convention. More than 800 people attended the event.

"As tough as it has been the last couple of years, there are still people making money," Blach said.

The market -- where cattle have been trading at between $80 and $88 a hundredweight -- is expected to continue in that range through at least the first half of next year, he said.

He blamed the industry's woes on the drop in consumer demand for beef amid the general economic downturn. Last year at this time, demand for beef was down 2 to 3 percent. It is now off by 10 percent.

"I don't want to be a downer, but I want you to know the truth," Blach told cattle producers.

He cited statistics showing the nation's foodservice industry has seen its steepest decline in 28 years. That affects demand for the high end cuts of beef that are typically served at steakhouses though it is offset somewhat by increased tonnage of meat going to grocery stores.

Blach estimated the lower consumer demand for beef has cost producers about $136 per head off the price they would typically get.

"Consumers don't have money and we don't have access in global markets," he said.

Beef exports have still not recovered to the levels they had before the first case of mad cow disease was discovered in the United States in 2003, he said.

Mad cow disease, formally known as bovine spongiform encephalopathy, is a degenerative nerve disease in cattle. In humans, eating meat products contaminated with the illness is linked to variant Creutzfeldt-Jakob disease, a rare and fatal malady.

While demand for beef is down, supplies have not been a problem, Blach said.

Beef production is off about 2 percent this year.

Although the nation's beef herd is the smallest since 1963, steer carcass weights have gone up. That increase in productivity has offset the need for 5.3 million head of cattle, he said.

At the same time hundreds of thousands of the nation's dairy cows are ending up as hamburger because milk prices have dropped so low that farmers can no longer afford to feed their animals.

"We are going to wipe out five years of expansion in the dairy industry in one year," Blach said.

Helping balance out some of the grim trends is the increase in global demand for beef as the demand for meat goes up with rising incomes in other countries where the economy may be recovering faster. This comes at a time global beef production is declining.

That bodes well for U.S. cattle producers -- if they can export more of their product. Opening global markets is an industry priority, he said.

Another bit of good news is that the United States is in better shape in terms of moisture than it has been in the last decade. The wetter weather pattern has helped bring in bountiful grain crops used for feed. Stockpiles of hay supplies are also good.

Even if drought sets in again, the nation has enough feed reserves now to carry it through 2010, he said.