WSJ
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excerpt :
It turns out the latest twists in the protein business illustrate a couple of significant lessons about today's economy. One is that for all the sophisticated computerized models of production and inventories, business still suffers from booms and busts. When the price of cattle or hogs goes up, farmers and agribusiness giants raise more of them, tend to overdo it and then push the price so low that they yelp. Hotel and office developers do the same thing.
The other is that disease, which can move among continents with alarming speed in a globalized economy, and disruptions to foreign trade can have huge ripple effects in domestic markets, even markets as large and self-sufficient as the U.S.
The protein glut reflects a confluence of forces. In the beef business, domestic demand was strong through 2004, helped by the Atkins high-protein, low-carbohydrate diet fad, explains Ted Schroeder, who tracks all this from Kansas State University. So beef prices remained high even though fears of mad-cow disease closed important Asian markets to exports. Exports represented nearly 10% of U.S. beef production in 2003, but less than 2% in 2004. Prices held up because the export ban was accompanied by a ban on imports of beef from Canada.
"When we had very high prices, that encouraged the rebuilding of the beef herd," Mr. Schroeder explains. Now the Atkins fad has faded and, to the disappointment of U.S. cattlemen, Japan continues to bar U.S. beef. Demand is down, but slaughterhouses produced 6.2% more beef in the first quarter compared with a year earlier. More supply, less demand -- and prices soften. Beef prices in commodity markets are down more than 10% from a year earlier.
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