The sector remains volatile, but all segments of the industry are told that they can expect to be profitable this year
SAN ANTONIO, Texas — The traditional cattle cycle of boom and bust phases may be gone, but volatility continues for the beef business.
However for 2020, the entire U.S. beef chain can expect to be profitable, said Cattlefax analysts at the National Cattlemen’s Beef Association convention held in San Antonio, Texas, from Feb. 4-7.
“When we look at 2020, all industry segments will be profitable, some not as much as we would like,” said Cattlefax chief executive officer Randy Blach.
He anticipated about US$500 per head profit will be split among industry players thanks to continuing strong demand and escalating exports.
“That is one of the best numbers we have seen in history,” he said.
Between 1980 and 1990, the best cow-calf producers could hope for was an average profit of $32 per head, but between 2000 and 2016 that improved to a more sustainable level of $239 per head.
Besides producing better beef where 80 percent graded USDA Choice or Prime, exports have improved steadily, outpacing pork and poultry in the last 10 years.
In 2010, the U.S. exported $4.1 billion worth of beef while pork sales amounted to $4.6 billion and poultry exports were valued at $3.1 billion. Last year, the U.S. shipped $8.2 billion worth of beef product while pork was $6.3 billion and poultry amounted to $4 billion.
The ongoing African swine fever crisis in China has created an international shortage of pork but has also improved prices for Brazil and Germany, major exporters to China, said analyst Mike Murphy.
“They have access to that Chinese market and they have been shifting major amounts of product into China to address their shortage,” he said.
About 18 billion pounds of pork are traded internationally but that is not enough to fill the shortage in China.
“There are opportunities for the United States as well as some other countries in the (European Union) and South America,” he said.
The U.S. stepped up pork production by seven percent since 2018 and this scenario could encourage expansion in the beef sector to meet the Asian demand for meat.
The Chinese are developing a taste for beef. The U.S. gained broader access to that market at the end of 2019 but small amounts have been exported.
However, Australia, Uruguay, Argentina and Brazil each exported 650 million lb. of beef to China last year.
Domestically, the U.S. herd has levelled off at around 31 million cows, said analyst Kevin Good.
“In the last few decades we have done a tremendous job of producing more with less,” he said.
“Beef production per cow has increased roughly 50 percent more than offsetting the reduction in cow numbers,” he said.
Carcass weights continue to grow, resulting in a record level of 27.7 billion lb. of beef last year. American per capita beef consumption in 2018 was 57.3 lb. and is forecast at 58.4 lb. in 2020. There are also record levels of pork and poultry on the table.
“We have got a bigger supply of protein in the domestic market to work through in the next 12 months,” said Good.
The balance of trade will keep the record beef supply manageable.
The greater challenge is finding enough processors to handle the large number of animals coming through. For the last three years, packers have had Saturday kills to handle the cattle presented to them during the expansion phase.
Even with current challenges, producers can expect a good year.
Cattlefax predicts fed steers will average $120 per hundredweight, ($3 better than last year), 750 lb. steers should be $150 per cwt. ($6 more than 2019) and 550 pounders will average $170 per cwt. Utility cows should average $65 per cwt. ($5 per cwt. more than 2019), while bred cows will be around $1,500 a head.
Some of these prices are dependent on corn prices.
Analysts expect an increase in corn acres to 94 million acres with spot corn prices ranging from $3.50 to $4 a bushel.