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Economics - Supply and Demand of Beef in the United States

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There are significant supply and demand issues as to why the price of beef has risen in the U.S. First, the supply of beef shifted to the left because "in May, a cow in Canada tested positive for mad cow disease. Subsequently, a ban was placed on Canadian beef" (Gebhart, 2003) thus reducing the supply of beef to the U.S. "According to the U.S. Department of Agriculture, beef imports from Canada in 2002 equaled 3.9 percent of U.S. beef consumption" (Ryman, 2003). This void left U.S. beef suppliers scrambling worldwide to fill the void. "According to the Consumer Price Index, retail beef prices rose 3.8 percent during October, the largest advance since a 5.6 percent rise in February 1979. The U.S. Department of Agriculture reported that cattle prices at one point were 60 percent higher than one year ago" (Ryman, 2003). "The U.S. ban on Canadian beef, following the Canadian case of BSE, had resulted in an increase in domestic beef prices due to limited supply" (www.termpapergenie.com/MadCowDisease.html).

Further stricture of the beef supply was the drought in the U.S. Plains region. Many hay farmers found it difficult and expensive during the drought to irrigate their crops and, consequently, many beef ranchers had to sell off their cattle or were unable to restock their herds because of the raising cost of hay (Gebhart, 2003). "And beef production won't increase until 2006 since, with the current high prices, ranchers will be sending as many heads as possible to the slaughterhouses" (msn.money.com).

If things weren't bad enough for the U.S. beef industry, in 2003 "Beijing suspended the imports, joining Singapore, Malaysia, Taiwan, Japan and South Korea" of U.S. beef after a cow in Washington tested positive for bovine spongiform encephalopathy BSE (CNN.com). According to the U.S. Meat Export Federation, Japan is the biggest export market for U.S. beef, importing $843 million worth last year (CNN.com).

A person would think that this would be the end for the U.S. beef industry, after all "BSE is linked to a similar form of the incurable and fatal brain-wasting disease in humans, called variant Creutzfeldt-Jakob Disease (vCJD)" (CNN.com). It has been reported that 100 people have died of vCJD (CNN.com).

However, in the U.S. the demand curve for beef has increasingly shifted to the right in recent years due to the popularity of diets that emphasize increase protein consumption, such as fatty beef products. Diets such as the Atkins and South Beach have spurned the demand for beef as the basis for quick weight loss. "Beef is hot, beef is back. People are sick of chicken" (Brezosky, 2003).

"But people would be back to beef even if there weren't a dietary license, trend analyst Gerald Celente said. He said people in a down economy post-Sept. 11 are tired of depriving themselves" (Brezosky, 2003) "Beef is also a comfort food," he said, with many looking at their investment portfolios and thinking, "What the hell? My life is falling apart on so many other levels; let me bite into a good steak or a big burger" (Brezosky, 2003).

Though this is costly times for beef consumers, three big stocks have benefited from the beef industry's hard times. Smithfield, Hormel Foods, and Rica Foods reported double-digit gains in the last month (msn.money.com). High beef prices have also

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