Source: Tom Johnston, MEATINGPLACE, 8/31/17


The United States will be a net beef exporter beginning this year, an indication of an increasing dependence on foreign markets as U.S. beef production expands aggressively relative to domestic consumption, Rabobank said in a report providing a long-term cattle outlook.

Following a severe liquidation intensified by drought in 2011 and 2012, the U.S. cattle herd has been in a robust rebuilding mode continuing since 2014 and that — given stabilized corn prices, higher domestic per-capita consumption and continued expansion of exports — will continue through 2019/2020, the report projects.

The beef cow herd is likely to remain at or above 30 million head from 2020 through 2025. Meanwhile, another liquidation phase is forecast to begin in 2020/2021 to compensate for downward price pressure from high supplies and total slaughter expected to peak in 2022, ultimately increasing beef production by as much as 10 percent over 2016 levels by 2022.

Lower retail prices and better economic conditions bumped up per-capita beef consumption to 55.5 pounds (on a carcass basis) in 2016, a 3 percent boost from the low point of 54 pounds in 2015. Increased production from herd rebuilding is expected to accelerate the trend by 4 percent to 5 percent, or about 58 pounds per capita, by 2020.

However, as beef production levels spike, and then go down, added pressure from lower chicken prices will force consumption to settle near 56 pounds per capita long term. The result is an expected increase in domestic consumption of 7.8 percent, or more than 2 billion pounds, through 2022. Nonetheless, total consumption of animal protein in the U.S. is not expected to grow much beyond the old peak established in 2008.

That means: exports.
“The renewed growth in beef production is driving things to a breaking point, where the U.S. will need to exceed the 10 percent production export barrier,” the report states.

Unlike its more export-heavy peers in the pork and chicken industries, the U.S. beef industry historically has not exported more than 10 percent of its total production. That’s changing, according to Rabobank, which notes that year-to-date beef exports currently are 10.7 percent of production and are on track to be 11.4 percent by the end of the year, and as high as 13 percent by 2022.

Exports not only will help relieve a domestic supply-demand imbalance, but also will satisfy a growing middle class in markets such as China and Southeast Asia. Rabobank projects the need for a 19 percent to 21 percent increase in total beef exports from 2016, and said that by 2025, total exports are expected to be in the range of 3.1 billion to 3.3 billion pounds.

Meanwhile, beef imports into the U.S. are challenged by a higher number of cattle available for slaughter and persistent carcass weights. Imports are expected to grow slightly, but remain below 3 billion pounds. Ultimately, Rabobank sees a positive net trade balance of 0.5 percent to 1.0 percent of total production each year over the 10-year outlook.

The downside of sending more beef overseas, however, is exposure to global volatility, particularly with production in position to exceed domestic demand. Domestic prices will respond more dramatically to trade-disrupting events, Rabobank explains.  And as a net surplus producer, the U.S. is more apt to rely on the global market to distribute the excess production, rather than depend on import adjustments to absorb trade disruptions.

Rabobank expects slaughter capacity to remain filled given the three- to five-year trend of increasingly available cattle. Without a significant drought, a high price of fed cattle relative to cutout is not expected to occur until after 2022, meaning an absence in the near term of the kind of pressure that has led to substantial capacity reduction.

Another dynamic of a net-export scenario is that an increase in the percentage of U.S. cattle rated choice and prime, while international demand for quality develops, is likely to up the spread between commodity, high-quality and ultra-high-quality beef. As such, premiums are expected to increase, and packers can target a premium international market as well as differentiate domestically from imported commodity beef.

For more stories, go to www.meatingplace.com.