U.S. meat sector expected to slow down soon

The herd liquidation is expected to be mild and unlikely to close feedlots and packing plants, as occurred in 2011-14

HOUSTON, Texas — North American meat consumption has increased because of population growth, but the latest beef cattle cycle could be slowing, says a Rabobank official.

While Canada’s livestock inventory has been stable for several years, the United States went through a five year expansion that put record amounts of meat on the market.

The U.S. is in for a slowdown, said Don Close of Rabo Agrifinance, and has probably peaked at around 32.7 million cows. Close is forecasting a shallow correction with a reduced herd of about 30 million cows.

“Under a mild liquidation we will see beef cow production stay at 30.5 to 31 million cows. It enables us to preserve the infrastructure, unlike 2011-14 when we were seeing feedyards close and we were losing beef plants,” he said at the International Livestock Congress held in Houston late last month.

There were not enough cattle to fill the plants from 2012-16, and now companies are running six days a week to process the additional supply. There will be no new beef plants to handle the additional supply.

“Nobody can get a plant built in time before numbers start to back off again,” he said.

“The oligopoly that the big four packers have and the margins they hold today, it is not in their economic interest to expand. It is going to take an influx of outside money for new players in the industry to break that oligopoly.”

However, smaller players have been able to open new facilities and mergers are occurring.

With plants running at full tilt, U.S. beef production is up three percent, pork is up 4.5 to five percent and broilers are at 2.5 percent growth. This resulted in U.S. per capita meat of 223 pounds, an all time record.

There are also more exports to take up the extra supply if domestic interest should fall.

“If we have that level of confidence on what the production levels of all protein levels are, we can’t take our eye off the ball and focus our attention on what is driving the economy and whether the economy will sustain itself to provide the disposable income to absorb 222 lb.,” he said.

An economic recession could be a damper.

The current growth period started in 2009 and has lasted an unprecedented 120 months.

However, there is high government debt of $22.3 trillion, which translates into a liability of $179,908 for every taxpayer. Interest rates are likely to rise.

Home sales are down and the Federal Reserve reported that seven million car loans are delinquent by three months or more.

Strong exports could take up the extra supply if domestic interest should fall.

“North America is pristinely positioned to be the global supplier of high quality product. That is our space in the market. We can’t compete with the Aussies and the Brazilians if we go low cost, low quality,” he said.

The U.S. exports more than 12 percent of its production compared to countries like New Zealand, Australia and Brazil, where more than half is exported.

Everybody wants to trade with China, but the U.S. does not need that market because of its considerable success in Japan, South Korea, Taiwan and Vietnam.

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