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September 4, 2017
US beef rises from the storm
After ten years of crisis involving everything from disease to feed costs and bad weather, America's beef cattle industry is undergoing its first genuine expansion in fifty years. A nasty hurricane will not change this.
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Despite the material impact of Hurricane Harvey on America's largest beef cattle producing state (see box story), US beef's long-term fortunes continue to brighten. Bolstered by a secular recovery in per capita beef consumption, rising export demand, an extended period of below US$4.00/bushel corn prices and a gradual recovery of US pastureland, five years of returns will cause cattle numbers to crest in 2019-20 and beef production a year later.
The piece of news that should cheer American beef producers the most is that 40 miserable years of falling per capita beef consumption seems to have finally, finally ended. From 40kg in the mid-1970s, the quantity and quality of beef consumed fell mercilessly. 
Per capita consumption did more than fall 41% over 40 years, from over 40kg in the mid-1970s to 23.7kg in 2015: Whereas popular opinion still associates America with cuts such as oversized 'Texas steaks', in reality, they now eat 41kg of chicken per capita –or 73% more chicken than they do beef. From a genuine steak eating nation in the 1950s, ground beef accounted for a bizarre 62% of all beef consumption by 2015.
The impossibility of harvesting so much ground beef from even America's vast cattle herd does more than make America a top beef importer after China. It means that that from a historical 2.3 to 2.7 times the price of ground beef, by 2013, an average steak only cost 1.7 times as much. This substitution of burgers in place of steaks crippled US beef's ability to get maximum value-added for their product. By the late 2000s, supermarkets were cutting steaks into cheaper, non-traditional smaller sizes to try and get consumers to buy more of them.
With the meat yielded per animal rising strongly, the number of cattle fell by approximately 33% from its 132 million head historical peak in 1974. Finally, the middle of our decade saw a constellation of favorable coincidences capable of taking the industry out of its long, 40-year rut.
As the accompanying graph shows, export demand picked up in the late 2000s, followed by a domestic consumption recovery three years ago. From a USDA estimated low of 23.7kg in mid-decade, the USDA estimates that per capita beef consumption has recovered to 26.3kg this year. By next year, Americans will be eating 26.7kg of beef, 12.6% more than half a decade earlier. This consumption recovery coincided with a return to low feed costs, a break in the southern plains pastureland drought, strong export demand and a period of record high cattle prices.
These favorable circumstances finally stopped and reversed the industry's long-term downtrend: From a secular, fifty-year USDA recorded low of 88.52 million head at the start of 2014, America's cattle herd will have risen 7.1% in four years, to 94.80 million head by the end of this year. Beef cattle numbers will have risen a sharper 8.3%, from 29.085 million head at the start of 2014 to around 31.5 million head at the start of 2018. Even so, due to cattle's long maturity time, the rate of inventory increase is tapering off but large beef production increases are just ahead.

In a reversal of 2014-16, calf retention is falling. Calf slaughter bottomed out at 30 million head in 2015, with heifer and steer slaughter dropping to 23 million that same year. They have since recovered to a USDA estimated calf slaughter of 32 million and steer/heifer slaughter of 26 million this year. A recent Rabobank report, ("US Longterm beef and cattle outlook: Expanding Beef Production Increases the Need for Exports", July 2017), projects beef cattle numbers to level out to a 33 million calf slaughter rate and heifer/steer slaughter of near 28.5 million in 2018, then stay near that level through 2025, declining marginally in the first half of the next decade.
From its secular low of 10.82 million tonnes in 2015, beef production recovered to 11.18 million tonnes in 2016. With inventories having risen more sharply than anticipated and slaughter rates rising Rabobank projects beef production to total 12.18 million tonnes this year, up 12.6% in just two years.
As the past three years of aggressive cattle herd additions reach maturity, slaughter rates will rise. That will lead beef production to peak at a Rabobank estimated 12.75 to 12.80 million tonnes in 2021 to 2022, before falling back to just under 12.7 million tonnes by the middle of next decade. By next year, beef production should finally break its 12.3 million tonne all-time peak set in 2000.
It is possible –but not very likely– that a mature market like America will see its per capita beef consumption keep pace with the 2.8% annual production growth that these projections imply will happen from 2015 through 2021 inclusive. Per capita consumption is expected to stabilize around 26kg to 27kg, leaving domestic beef demand to rise by approximately 2.0% annually.

Fortunately for US producers, China single-handedly added a million tonnes of beef import demand to the world market this decade. Even if America's newly liberalized ability to export beef to China falls victim to Trump's protectionism, overseas demand for US beef will not suffer much: Australian cattle numbers falling, Indian beef exports held back by Hindu fundamentalist politics and Brazilian exports caught up in meat safety scandals, export demand for American beef has never been stronger.
With all this in mind, the USDA's initial export forecast of 1.24 million tonnes will probably be exceeded, and total 1.27 to 1.28 million tonnes. This will be 10.2% more than last year's 1.157 million tonnes and breaks the previous 2011 record of 1.263 million tonnes. With rising inventories and slaughter comes more ground beef production, making fewer imports necessary. With 2017 foreign beef purchases falling to 1.20 million tonnes (rather than the USDA projected 1.27 million), America becomes a net beef exporter for the first time since 2013, when drought reduced the quantity of exportable steak cuts.

The resulting trade surplus will be small but enduring:  America's recovering appetite for beef will create its usual shortfall of ground beef, probably stabilizing imports into the 1.2 to 1.3 million tonne range into the middle of next decade. By that time the current, ageing beef/cattle market cycle will have bottomed out and a new upturn in cattle numbers should have commenced.
With export growth exceeding that of consumption and providing an outlet for higher cattle numbers, another long-term trend resumes: From under 4% before the mid-1990s, US beef exports reached 8% before 2003's mad cow disease epidemic hammered them back to under 2% in 2004. Thereafter, they achieved 9% to 10% of production before.
Beef exports will account 10.5% of production this year, rise to 11% by 2020, with Rabobank estimating they could make up 13% of output by the mid-2020s. Should feed costs stay low and returns favorable, the next cattle market upturn could see US beef exports account for 15% to 20% of production by the late 2020s.
There is one other matter that could brighten up this picture: If the industry could convince Americans to eat more steak and fewer burgers, it could easily displace low cost imports with more value-added domestic production. Similarly, a pronounced, ongoing US trend towards consuming proteins with higher saturated fat content could surprise everyone by pushing per capita beef consumption towards 30kg for the first time in decades –but only time will tell.
Even so, after being hit with mad cow disease last decade and a combination of drought and high feed costs in the early 2010s, US beef appears to be solidly back on track: For the first time in fifty years, the industry is actually expanding rather than using exports to relieve itself of unsellable goods. It was long in coming but world leading productivity and internationally competitive fundamentals have finally put US beef back on the export-oriented growth track that appears to be its natural, long-term destiny.

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