Production of beef slows —layoffs rise

Beef production is slowing and layoffs rising as meatpackers grapple with fallout from a trade ban on U.S. beef following the discovery of the first U.S. case of mad cow disease.

Industry officials hope a visit to the United States next week by Japanese agricultural officials spurs a breakthrough that resuscitates the $3.5 billion annual export market for U.S. beef. That's about 10 percent of U.S. beef production. About 35 nations have banned U.S. beef, including No. 1 importer Japan.

Prices of U.S. cattle futures have skidded about 20 percent since last week's revelation of the first U.S. case of mad cow disease, in a Holstein dairy cow in Washington state.

Beef processors, many of which had trimmed work schedules 20 percent amid a short cattle supply, are slowing more, says Lynn Heinz, a vice president of the U.S. Meat Export Federation. "We've cut back in the last week," says Rick Carlson, vice president of PM Global Foods in Kansas City, Miss. "You've lost 10 percent or more of your business -- it definitely has an effect."

Hardest hit are the several dozen specialty processors that depend almost exclusively on exports. Fremont Beef in Fremont, Neb., which sends 80 percent of its beef to Japan, laid off 49 of its 131 workers this week. "We have no business," says spokesman Steve Buell. If the ban continues for a few months, "I see us closing up."

The biggest financial concern is that 2,000 shipping containers stuffed with about 90 million pounds of beef were headed for Pacific Rim countries when the trade bans were imposed. The shipments, valued at about $200 million, are stalled at foreign ports. Their loss could spell "financial ruin" for small specialty processors, Heinz says. Some of that beef has been shipped back to the United States, says analyst Bob Wilson of livestock research firm HedgersEdge.com.

Talks continue between U.S. and foreign agriculture officials in a bid to deliver the beef but Japan has said it will not discuss the issue until more is known about the infected cow.

The Bush administration announced measures Tuesday to boost confidence in the U.S. beef supply, including banning meat from cows that can't walk and speeding creation of a nationwide tracking system. Officials hope the steps ease concerns of Japanese officials slated to visit production facilities, including the plant where the diseased cow was found.

But if the ban drags on for months, "it would be a major hit for the entire industry," says Jim Herlihy, spokesman for No. 3 beef processor Swift.

Some of the beef destined for overseas markets could be sold in the United States. But that could flood the market and further drive down prices, analysts say.

Retailers say U.S. consumer demand remains strong. But U.S. processors won't get a true picture until normal buying resumes after the holidays, says Merrill Lynch analyst Leonard Teitelbaum.

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