by: Wes Ishmael
�Retail beef prices are currently higher than last year despite the increase in beef supplies in 2017,� said Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his December market comments. �Beef demand is all the more impressive given that total meat supplies are higher year over year, not only the result of more beef, but also increased pork and poultry production.�
For perspective, Peel explains November retail Choice beef prices were $5.81/lb., which was slightly higher than a month earlier and a year ago. The same goes for the all-fresh retail beef price in November of $5.64/lb.
�The ratio of retail beef prices relative to pork and poultry remains very strong, holding near to record levels achieved during the record high prices in 2015,� Peel said. �The calculated beef demand index, which accounts for pork and poultry impacts, as well as increased beef production, showed a slight increase for the third quarter of 2017.�
That reflects 2017 with cattle prices significantly higher year over year, in the face of growing beef supplies. There were several primary factors behind higher prices than many expected at the beginning of last year.
First, the supply grew less than expected because carcass weights remained lower year over year throughout 2017. That had everything to do with markets encouraging feedlots to remain current in marketing, while favorable feeding returns encouraged reloading pens without hesitation.
In other words, cattle feeders maintained market leverage by remaining current. At the same time, beef packers enjoyed historically wide margins, which encouraged them to remain aggressive buyers.
More important than prices, of course, was the potential profit. In fact, last year was a rare opportunity for every industry segment to profit simultaneously.
In November, analysts with the Livestock Marketing Information Center (LMIC) estimated a return of about $69 per cow this year compared to -$21 last year, even though cash production costs per cow were estimated to be slightly higher. That's based on a typical commercial full-time spring calving and fall weaning operation.
�Those estimates are not survey-based and are developed for market analysis purposes,� LMIC analysts explained in the Livestock Monitor. �They do not represent an individual ranch/farm resource base. LMIC calculations only include cash costs of production and pasture rent.�
All of that was made possible by stronger domestic beef demand in tandem with historically strong international beef demand.
�U.S. retailers battled for customers, and one tool they used was featuring beef and offering special prices� Demand by packers for slaughter-ready animals was robust and helped pull animals through feedlots, keeping slaughter weights below 2016's,� said LMIC analysts. �As 2017 progressed, several positive demand factors came together supporting cattle prices in the face of a larger national calf crop and more U.S. beef production than in any year since 2010.�
One of those factors was international demand.
U.S. beef exports are poised to break $7 billion this year for only the second time, according to October export results released by USDA and compiled by the U.S. Meat Export Federation (USMEF) in December.
Beef exports in October were five percent more in terms of volume (111,287 mt) and 18 percent more in value ($662 million) compared to the same time a year earlier. For January through October, exports totaled 1.038 million mt, up nine percent year over year, with value 16 percent more at ($5.93 billion). That's slightly ahead of the record value pace established in 2014.
October beef export value averaged $301.88 per head of fed slaughter, up 12 percent from a year ago and the highest since December 2016. For January-October, export value averaged $279.85 per head, up 10 percent.
International Demand Will Determine Industry Size
In fact, it's easy to argue that global demand will ultimately determine if the U.S. beef industry can grow and by how much.
U.S. exports must increase to accommodate the expanding U.S. cattle and beef industries, according to a recent baseline report from RaboResearch Food and & Agribusiness (RRFA) group.
The RRFA report, Expanding Beef Production Increases the Need for Exports: U.S. Long-Term Beef and Cattle Baseline Outlook projects industry expansion lasting another two to three years and notes that the domestic industry is mature with a steady rate of beef consumption.
�In order for the beef market to remain in equilibrium, the U.S. will have to increase exports to be consistently above 10 percent of total production (greater than 3.1 billion lbs.), thereby also becoming a net exporter of beef,� according to the report.
�Population growth, along with improving middle-class incomes, are the global drivers behind the opportunity for increased beef exports,� notes RaboResearch Global Senior Data Analyst Sterling Liddell. �Conversely, beef imports into the U.S. face headwinds as an increased number of head available for slaughter combines with relatively persistent carcass weights to equal, or exceed, domestic demand levels.�
The report provides an outlook through 2025 for U.S. beef and cattle industries.
In the meantime, Peel says strong domestic demand will depend on the continuation of generally strong macro-economic conditions, including decreased unemployment and growth in consumer income.
�Any change in overall macroeconomic conditions is a threat. Factors to watch include rising interest rates and inflationary pressures,� Peel says. �Shocks external to the beef industry�such as a sudden jump in gasoline prices�could sharply impact consumer spending and beef demand.�
�For the next two years, the major market outlook issue or headwind for all the U.S. livestock and poultry markets is the sheer tonnage of product that will be produced,� say LMIC analysts. �In both 2018 and 2019, forecasts call for record-large total U.S. red meat and poultry output. It is important to note that even though many consumers do some substituting between categories, it is not one-for-one. That is, for example, in the overall retail marketplace one pound of beef does not substitute for that same amount of chicken.�
U.S. beef production this year is projected to be the largest since 2011, according to LMIC. Pork and poultry production are estimated to the most ever.
�On a retail weight basis, 2017's total red meat and poultry disappearance is projected by the LMIC at 215.5 lbs. per person, up 1.6 lbs. from a year ago,� say LMIC analysts. Forecasts for 2018 and 2019 are for 218.5 and 220.9 lbs. per capita, respectively. If realized, both those years would be the largest since 2007's. Those levels are not unprecedented, but the 2019 forecast is only one lb. below the record high set in 2004.�
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