August 19, 2010

US beef exports rise 13% on-year

USDA's August Livestock, Dairy and Poultry Outlook has reported that 2010 beef exports are up 13% on-year as cow slaughter continues at a high rate.

The July 1, 2010 cattle report indicates that feeder cattle prices and the current series of profitable months of feeding cattle have not been enough to motivate beef cow herd expansion. As a result, cow slaughter continues at a high rate, setting the stage for further declines in cow inventories.

While cattle cycles can be defined as total inventories of cattle and calves from trough to trough or from peak to peak, the cattle cycle behaviour that persists is largely due to dynamics in the beef cattle sector, since dairy cows have not exhibited cyclical behaviour since about 1947. Other ways to look at cattle cycles are by cow inventories or by beef cow inventories. Each cycle consists of an expansion phase, a consolidation phase, and a liquidation phase.

Historically, the shortest expansion phase occurred from 1980 to 1982 when inventories increased by 4% from their low point. This expansion was followed by a liquidation that lasted eight years from 1983 to 1990, during which, inventories declined by 17%. The next cattle cycle peaked in 1996, increasing 8% from its 1990 low-a six-year expansion. This was followed by an eight-year, drought-extended liquidation that saw inventories decline by 8% and left a 2004 cattle inventory about a million head lower than the January 1, 1990 trough. The shortest liquidation phase in historical terms occurred during the cattle cycle that began in 1959, peaked in 1965 and bottomed in 1967-a two-year liquidation.

The expansion phase of the current cattle cycle began in 2005 and peaked in 2007, due in part to a short-lived upturn in dairy cow inventories. With the July 1, 2010 inventory report, US inventories of cattle and calves are four years into liquidation. If one looks solely at January 1 beef cow inventories, the decline that began in 1996 has been continuous except during 2005 and 2006. Declines in both July 1, 2010 beef cow inventories (down 1%) and beef heifer inventories (down 2%) suggest that a further decline is likely in store for January 1, 2011 beef cow inventories.

A number of factors drive inventory dynamics. Weather patterns, especially drought, can shift inventories into or extend liquidation of the cow herd. Profit margins can also affect retention or liquidation decisions. Current cow prices appear to be sending significant numbers of cows to slaughter, reducing the total cow inventory from its already low levels.

US beef exports in 2010 are forecasted at 2.19 billion lbs, growing 13% above 2009 export levels. Japan and South Korea are adding the most momentum to exports of US beef. Exports to other major export markets in Asia also increased on-year through June: Vietnam (+2.5%), Taiwan (+48%), and Hong Kong (+84%). For 2011, US beef exports are forecasted to decline 6% against 2010 due to lower beef production as the domestic cattle inventory declines.