At several meetings that I have presented at this year, livestock producers have asked if Avian influenza, commonly referred to as bird flu, would impact livestock prices.
One cattle producer commented that he thought bird flu could be good, since destroying chickens would mean less competitive meat for the beef industry.
However, livestock producers should be very concerned because bird flu already may have negatively impacted beef and other meat prices.
According to USDA ( www.usda.gov/birdflu ), bird flu is a disease caused by a virus that infects domestic poultry and wild birds. Each year there is a bird flu season just as there is a flu season for humans. Some forms of the flu are worse than others.
LPAI, or "low path" avian influenza, has existed in the U.S. for some time and does occur periodically. It causes birds to become ill, but poses no serious threat to human health. Outbreaks in the past have caused temporary restrictions on U.S. exports of poultry from states where it has occurred.
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HPAI, or "high path" flu, is often fatal in birds and is more easily transmitted. The H5N1 strain of HPAI is the one that is spreading in Asia, Africa and Europe.
This strain has been transmitted to humans in Southeast Asia. Those infected have had extensive, direct contact with the infected birds. Consumers in some of those countries have sharply reduced their consumption of poultry products, domestic and imported.
The broiler industry is quite important in world trade. The U.S. is the world's largest producer of broilers and produces 1 1/2 times more broiler meat than second-place China. The U.S. is the second largest exporter of broiler meat and was in first place until Brazil overtook the U.S. in 2004.
After starting 2005 strong, U.S. broiler exports declined sharply by the end of the year. Fourth- quarter reductions were likely due to declining consumer demand in countries and neighboring regions where bird flu has been identified.
Reduced exports led to increasing stocks and much lower chicken prices in the U.S.
By the end of January 2006, U.S. cold-storage stocks of chicken were at record levels, about 46 percent above year-ago levels. Dark chicken meat sales are especially dependent on the export market. The lack of export sales was evident in chicken leg stocks, which are about 2 1/2 times higher than in 2005.
For the period from mid-September 2005 to mid-February 2006, wholesale broiler prices declined 16 percent, wholesale chicken breast prices declined 30 percent and wholesale chicken leg prices declined a whopping 45 percent.
Major declines in wholesale chicken prices result in chicken that is priced very attractively to retail supermarkets and the food service industry, including fast-food outlets. Some retailers, in turn, have shifted features and other promotions to chicken and away from beef, pork and other meats.
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Theoretically, lower chicken prices reduce the demand for substitute meats, such as beef or pork. But, it is difficult to quantify the exact impact that declining chicken exports and prices have on other meats because of the many factors that affect demand. Consumer incomes, tastes and preferences both domestically and abroad, and changes in prices of all competing meats are important determinants of demand.
However, a look at U.S. cow slaughter and prices during the last half of 2005 can serve as an example. Beef cow slaughter was down 5 percent from a year earlier due to improved grazing conditions in many Western cattle producing-states and interest in herd rebuilding. Total cow slaughter was down 4 percent.
This decline in slaughter should have been supportive to prices, but both the wholesale cow beef cutout value and market cow prices averaged about 5 percent lower than in the last half of 2004.
Likely, much of the decline in prices was due to aggressive featuring of abundant, low-priced chicken at the expense of hamburger products.
An outbreak of H5N1 in the U.S. likely would close some export markets for poultry, similar to the BSE situation that is so familiar to the beef industry.
So, eradicating bird flu overseas, preventing it from happening in the U.S. and a return to a robust export market for chicken is important not only for the poultry industry, but also for the beef and other meat sectors.
