There's more than one potential path to better beef prices but the most likely road is the one that leads to offering consumers fewer total pounds of product but at higher prices, according to James Mintert.

And that, the Kansas State University economist said, means the beef industry will contract—fewer cows and, probably, fewer cowboys.

Dramatic increases in production costs—led by record-high grain prices—have dished out economic hurt up and down the industry, particularly in the feeding sector, Mintert told cattlemen at last week's Beef Cattle and Forage Crops Field Day at the Southeast Agricultural Research Center near Mound Valley, Kan.

The other two paths to achieve the higher beef prices needed to keep up with higher costs are stronger domestic demand and stronger export demand, he said.

Strengthening domestic demand for beef, the economist asserted, is unlikely in the near-term. A weakening economy, Mintert noted, may have the reverse impact—a softening in beef demand as consumers struggle with other economic pressures.

Growth in the beef export market is far more likely, he said, but it will be difficult to gain enough of that market back to offset higher production costs. Mintert said Japan and South Korea are the keys to improving export demand and he called the reopening of the South Korean market "tremendous news" for the industry.

Exports to Japan, he said, are growing very slowly, primarily because of the age restriction on exports to Japan. Longer term, Mintert indicated that Japanese consumers heightened concerns about about food safety and a deep mistrust of the American product could continue to hold back U.S. beef exports, once the age restriction is lifted.

Increased costs are driving a continued reduction in the nation's cow herd, although the rate is still fairly slow, Mintert said.

According to K-State Farm Management numbers, total cow/calf production costs have risen about 25 percent since 2005 and will likely take a big jump this year as feed costs stand out as the 500-lb. gorilla in the room. Breakeven calf prices for 2008, figured against total costs, are in the $130 range.

Although returns to variable costs were still positive last year for the cow/calf sector, Mintert said, they were dramatically less than in 2005.

The result has been a 12 percent drop in U.S. beef cow numbers in 2006 and a 6 percent decrease in 2007. How much cow herd reduction occurs this year will be dictated by summer crop and pasture conditions.

In the feedlot, cost of gain has racheted up significantly while the prices paid for feeder cattle have not dropped enough to compensate, resulting in record losses for feeders.

And beef processors find themselves with too much capacity as cattle numbers, and their margins, decline.

In the past, high corn prices have tended to correct themselves. Short supplies led to higher prices and growers responded the following year with increased plantings and a return to normal yields which, ultimately, brought prices back down.

Now there's a totally different scenario at work as demand, especially for ethanol, promises to maintain record corn prices for the foreseeable future and Mintert cautioned that any weather-related threats to this year's corn crop could send prices much higher still.