U.S. beef outlook sound, but sector wants less volatility

North American producers have managed to turn the beef ship around from one that was floundering to a robust industry where extended profitability is keeping most sectors afloat.

Beef demand dropped by 50 percent from 1980-98 so producers responded to consumer demands for a higher quality, more consistent product.

“We have an industry that is sustainable,” said Randy Blach, head of the market analysis firm Cattlefax in the United States. Not only have fortunes improved for producers at home, but the world’s growing population is looking for better beef, he told the Canadian Beef Industry Conference held recently in Calgary.

“If these world population estimates are anywhere close to accurate, the demand growth that we are going to see globally is absolutely phenomenal,” he said.

When consumers have more money to spend, they upgrade their diets and that includes adding more meat.

In total, the U.S. will produce 28 billion pounds of beef this year, which should earn a profit. If demand had not grown in the last 20 years, fed cattle would be $20 per hundredweight less and calf prices would be $50 per cwt. lower.

“In that 20-year time period, we made $2 a head. Since the demand low in 1998, our average profitability is $165 per head. If we had not grown this demand curve, calf prices would be trading $50 a head lower,” Blach said.

The U.S. has exhibited a remarkable recovery since 2012 when large sections of the country suffered the worst drought since the 1950s and some regions paralleled conditions of the 1930s. Weather has improved and the herd has grown at phenomenal rates following a period of severe liquidation due to feed and water shortages, he said.

“We have the best grazing conditions in the United States of any time in the last 25 years. We are not liquidating cows because we don’t have water and we don’t have feed,” he said.

He anticipates ample hay supplies and a stable corn crop.

There are a record numbers of cattle on feed and calves outside of feedlots.

“The cattle pipeline is pretty well full up. The reason we went to record high calf prices in 2014-15, there wasn’t enough. There wasn’t enough beef, there wasn’t enough pork and there wasn’t enough poultry,” he said.

Live numbers are expected to flatten out to about 32 million beef cows and nine million dairy cows.

Globally, cow numbers have increased by more than six million head since 2006 because of escalating demand for beef. In addition, those cows have become more productive so there is more beef available from fewer females.

The packing sector is making money but it is under stress as companies attempt to deal with record levels of cattle.

In 2000, more than 30 million head were slaughtered but following massive liquidation, by 2014 about 23 million head were processed. Five major packing plants that each did about one million head per year closed. The survivors are now adding Saturday and sometimes Sunday shifts to handle the added supply.

In addition, a Tyson Meats plant in Kansas is closed for repairs because of a fire. This is a significant disruption because up to 6,000 head per day were processed there.

With the larger inventory, overall quality has also improved with a higher percentage of cattle grading Choice or Prime. There is demand for that kind of quality around the world.

“Our consumers will be in a lot of places around the globe. We better be willing to adapt to what they want. If they want it purple, we better be able to figure out how to make it purple,” Blach said.

Market access is critical because there is record production of beef, pork and poultry in the U.S. at 105 billion pounds next year.

He said this means trade deals need to get settled. Canada exports 45 percent of its beef production while the U.S. exports 18 percent of its production or about 18 billion lb. If a disease like African swine fever or foot-and-mouth disease was discovered, international markets would close and the domestic market would have to absorb the extra meat.

Global economies are fatigued and slowing down as a result of the trade wars. The beef industry is heading into peak supplies for the next few years and is vulnerable to any type of economic slowdown, he said.

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