Beef Is Bouncing Back
In January 2014, the U.S. found itself with the lowest number of beef cows it had seen since 1962. Since then, things have improved.
“We’re seeing a recovery in the cattle herd, but it’s nowhere close to where we were 10 years ago,” says Michael Swanson of Wells Fargo.
The last cattle cycle peak in 2007 recorded 96.6 million overall cattle head, with 32.7 million of those being beef cows. By 2014, cattle numbers had fallen by 8.3%.
“We’ve bounced back nicely, but a lot of it has been people retaining beef cows because they expected to make good money,” Swanson says. “Because they’ve retained the beef cows, they’ve been rewarded with poorer prices for calves and beef cows.”
Unfortunately for producers, packers aren’t willing to pay that risk premium since supply is up.
Competing with Chicken and Pork
Warm weather causes a consistent push for beef sales with grilling on consumers’ minds. Beef prices have climbed to a level that’s less enticing, though, for someone looking at the grocery store shelves full of chicken breasts and pork chops sitting next to pricier steaks.
“It has been hard to move beef to consumers,” says livestock marketing economist David Anderson of Texas A&M Extension. “We have had some pretty inexpensive chicken, which makes it a tougher market for beef to compete in.”
According to Swanson, retail beef prices have gone up much faster than both pork and chicken prices.
Where Beef Is Going
Since the 2014 low, beef producers have taken to raising fewer but heavier cattle, which is, in part, due to the tax advantages for larger operations that are no longer included in legislation.
The main reason? Genetic advancements and cheap corn prices are making it more affordable for producers to feed more and pack on the pounds before going to slaughter. Many herds are even shifting back to being fed corn alone, instead of a combination of feed including DDGs.
Feedlots continue to shift farther north as herds are being raised closer to where the corn grows abundantly, says livestock analyst John Ginzel of Linn Group.
“There are 940,000 beef cows in Iowa in 2016, which is the highest number since 2008,” Anderson says. “Missouri has the largest number of beef cows since 2010.”
When corn and soybean prices were spectacular in the late 2000s, beef producers pulled the reins on raising cattle and put row crops and wheat in the ground. Since then, beef has slowly been making a comeback in much of the Corn Belt.
In places like Texas and California, though, beef herds have been significantly pulled back due to the high cost of water and overall shortage of it. The abundance and affordability of resources like water and feed have helped states like North Dakota grow in the beef sector.
The Latest Trend
In the last six to eight years, producers have been buying week-old calves and putting them into feeding programs. These young calves will typically be placed into Amish-type feeders from the time they’re only a few days old until they are 3 to 4 months old.
“A lot of large cattle feedlot groups have been coordinating to get control of cattle at lighter weights prior to getting into feeder lots because of tight supplies of stocker feed cattle and too much feedlot capacity,” Ginzel says.
Bob veal calf slaughter has fallen 40% to 50% in the past year due to this trend. With many feedlots not understanding how to raise Holstein steers, ranches and feedlots have begun to specialize in the production of Holsteins. Those operations are able to get premiums from packers seeing a demand for the prime cuts.
As this trend continues and the beef-type cowherd expands, Ginzel is predicting a greater supply of stocker feeders and less demand.
Currently, half of all U.S. prime beef comes from dairy-type beef, which Ginzel believes is phenomenal.
Exports Up But Needing a Boost
The combination of a strong U.S. dollar and what Joe Schuele of the U.S. Meat Exports Federation (USMEF) considers a sluggish global economy isn’t ideal for improving U.S. beef exports, but it’s not all doom and gloom.
The U.S. is exporting slightly more beef, yet those exports are down 13% year to date in terms of dollars, according to Anderson. In 2014, beef exports shattered the previous value record with $7.14 billion in exports. Expecting a bit of a slowdown in 2015, the USMEF saw a larger slow in exports than it had anticipated.
“Exports will continue to improve in the second half of this year but not to 2014 levels,” Schuele says. “It will likely take another year or two before we’re back to that level, but we should see continued improvement compared with 2015.”
A bright spot in the global U.S. beef export market is Japan – a country that’s becoming a top dog in the race for U.S. beef again with a recent interest in beef tongues. According to the USMEF, tongue exports to Japan have increased by 20% as of May 2016.
However, Japan can import beef products at more affordable prices from Australia – the biggest export competitor for the U.S.
Although Australia is currently rebuilding its beef herd, in the first half of 2015, the country’s low prices and tariff advantage really set the U.S. back in beef exports to Japan and Hong Kong. Through an economic partnership, Australia has a 28% tariff in Japan, which is more than a quarter lower than the 38.5% tariff the U.S. abides by.
The Canadian dollar and Mexican peso are quite weak compared with the U.S. dollar, which has made North American exports more difficult for the U.S.
“If we don’t have TPP, that gap will continue to widen,” says Schuele of Australia’s advantage in the Japan beef market. “Our tariffs would be put on a parallel basis if we could get TPP ratified.”
An additional setback for the U.S. is the current strength of the U.S. dollar.
The Canadian dollar and Mexican peso are quite weak compared with the U.S. dollar, which has made North American exports more difficult for the U.S. Canada remains a leading importer of U.S. beef, however, it’s a challenging exchange with the currency inequality.
“The strong U.S. dollar has been a hurdle for exporting beef,” Swanson says. “It’s so much more expensive for other countries to import our products.”
After seeing increasing beef exports to Latin American countries like Chile, Peru, and Colombia, the U.S. has experienced a slowing down of exports to those markets because of their weak currencies and also, in part, the tough competition from South American beef in that area.
Considering the economic situation in the Middle East, Schuele is impressed with how reliable countries like the United Arab Emirates, Kuwait, and Oman are for importing high-quality U.S. muscle cuts.
There is plenty of room for improvement, though.
The USMEF would love to see the Russian trade market reopen to U.S. beef. Since 2013, Russia has not taken on any U.S. beef based on the fact that the country couldn’t come to an agreement with the U.S. about beta-agonist feed additives, such as ractopamine. The country even refused to take beef from the USDA’s beta-agonist-free certification program. In 2012, the U.S. exported $300 million worth of beef to Russia.