Capital Press

Market watchers are forecasting a good year for U.S. beef but say 2012 won't be without its challenges.

One has to start with the reality that U.S. cattle numbers are really down, said Raoul Baxter, president of Worldwide Business Development at Fort Mitchell, Ky., and a

30-year veteran of the meat industry.

The U.S. is not going to be able to compete globally on price. The value is going to be in its grain-fed cattle, he said.

"Everybody in the world feed grass," he said.

That tends to produce a very different kind of beef that doesn't grade very well. But trying to make money feeding cattle will be the toughest challenge for the U.S. industry due to high feed cost, he said.

Nonetheless, there's a good and consistent market in Japan, a growing market in South Korea and an emerging market in China, he said.

Due in part to a weak U.S. dollar, U.S. beef exports to Japan from January to early December 2011 increased 43 percent over the previous year, and beef demand there is expected to be steady to slightly weaker in 2012, according to Rabobank in its beef quarterly report in January.

Hoof and mouth disease in South Korea is already bringing more demand there. With feed costs three times that of the U.S., the South Korean government is likely to pull back on rebuilding the herd, Baxter said.

Given China's tight domestic supply and high prices, beef imports are believed to have increased, Rabobank reported. Direct imports, however, decreased 22 percent in the first 10 months of 2011, believed to be the result of huge amounts of illegal imports.

Given that dynamic, Rabobank expects China's government to open beef imports to more suppliers in the future.

Potential also exists in Russia and the EU, Baxter said.

While Rabobank expects the difficult economic situation in the EU to negatively impact beef demand, Baxter expects U.S. beef exports there to pick up. It's difficult for EU cattle production to be competitive, and there's been some resolve with the EU over the U.S. beef hormone issue.

And while Russia makes no bones about striving to be self sufficient, it'll be difficult long term to have self-sufficient beef production, he said

Overall, the value of selling U.S. beef into international markets is that those markets want 100 percent of the animal, not just the middle cuts that are popular in the U.S., he said.

"The most important point is increasing the value of all the products, " he said.

Other things to watch include the impact of Asia's growing dairy herd on beef supplies and free trade agreements worldwide. The U.S. industry also needs to be vigilant in keeping out diseases and putting in place a traceability system, he said.

But a very good future lies ahead for U.S. beef, he said.

"America is the only place you can get a large volume of high quality beef," he added

Worldwide, Rabobank expects to see continued strength in cattle markets, with the potential for double-digit gains again this year.

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