How quickly will full beef-export trade be restored to Japan and South Korea?

Though it sounds like a broken record, optimism is growing that U.S. beef-export demand will be restored with Japan and South Korea sooner than later; Cattle-Fax is predicting some resolution in the first half of this year. With U.S. beef exports last year at about 70% of the 2003 level - before BSE closed markets - Cattle-Fax says a fully restored Japanese market would add an additional $65/head of fed cattle; fully restored trade with South Korea would add another $25-$30.

In fact, depending on how you rationalize the future, the global buying power and demand for grain that's turned those markets inside out, represents the U.S. beef industry's most significant growth opportunity going forward.

What will be the degree and speed of increased feedlot and packing consolidation?

Last month, Tyson Foods shuttered its harvest facility at Emporia, KS.

“At a time in the cattle cycle when cattle numbers should be at or near their highest, the level of production isn't approaching its historic peaks and we don't see any increases in fed-cattle production in the foreseeable future,” said Jim Lochner, Tyson Fresh Meats senior group vice president, last month when the company announced it would cease cattle harvest at its Emporia facility.

At the time, Dick Bond, Tyson Foods CEO, explained, “There continues to be far more beef-slaughter capacity than available cattle, and we believe this problem will continue to afflict the industry for the foreseeable future. We estimate the current slaughter overcapacity in the industry to be between 10,000 and 14,000 head of cattle/day.”

It's no surprise that packing and feedlot sectors - already with at least 20% excess capacity, according to most industry estimates - are looking to pare capacity to a point more in line with shrinking cattle numbers.

As of Jan. 1, the inventory of all cattle and calves stood at 96.7 million - down slightly from last year's 97 million. All cows and calves are down 1% from 42 million to 41.8 million. Beef-cow numbers declined 1% at 32.6 million, while the dairy-cow herd increased 1% to 9.22 million head.

The safe money sees further liquidation this year. Beef-replacement heifers were down 4% last year (5.67 million head). That doesn't mean beef production will decline significantly.

According to Kevin Good, Cattle-Fax analyst, the U.S. will import about 2.5 million head this year. Even so, U.S. per-capita consumption will decline slightly because of supply, not demand.

Speaking of which, Good says, from an inventory standpoint, the traditional cattle cycle is on life support, evolving into one based on beef production and technology, rather than cattle inventory - producing as much or more beef in relative terms with the same number or fewer cattle.

How will the farm bill play out?

By mid-February, a Senate-House Conference Committee was still in the throes of hashing out a farm bill that President Bush said he'd veto without significant revisions.

Though the House presented a new version more to USDA's liking, Schafer explained, “The Senate's most recent farm-bill proposal recommends increases in taxes and significantly grows the size and scope of government while failing to implement much needed reform in our current farm bill programs… The President has said time and time again that he won't support a bill that raises taxes and uses taxpayer dollars to increase the size of government, and that is exactly what this proposal does.”

Keep in mind, besides cost and reform, this farm bill continues to include language that would ban packer ownership of cattle more than 14 days ahead of harvest, as well as revisions to compliance mandates for country-of-origin labeling scheduled to begin in September.

Which opportunities will individual operations embrace?

It's not like anyone expects the bottom to drop out of the cattle market this year - supplies are too snug relative to demand, thanks to over-capacity in the feeding and packing sectors. Popular consensus among market analysts is that prices for calves and feeder cattle will be slightly lower next year, but that input costs will continue to rise.

However, there's also more opportunity to differentiate products and add value than ever before.

Whether its natural and organic, preconditioning, age-verification or brand-specific attributes - even grid and formula pricing for that matter - there are opportunities to receive prices higher than market averages. That's why the price spread for same-weight, same-sex, same-class cattle are historically wide and expected to grow.

“You'll have to embrace more risk management in your operations,” says Randy Blach, Cattle-Fax CEO. “This is a different business today, and it's going to continue to change.”