America’s beef colossus

I grew up on a mixed livestock farm on Banks Peninsula. My family raised dairy and beef cattle, sheep and hogs on acreage that went from sea level to 2000 feet. I thus developed a great love of animals, including dogs and horses, from a very young age.

My Dad was especially proud of the beef cattle he raised. He used top-quality Hereford bulls to mate with purebred Friesen heifers from the dairy herd. The result was a handsome mix of colours, from Hereford to black/white face to pure black.

My abiding memory of Dad was when he haggled with Barry, the cattle buyer from Christchurch, when it came time to sell cattle. Dad would ask a certain price and Barry would reply: “Mr. Kay, I can’t give you that much because of the darned American market.” Little did I know that years later I would start a newsletter called Cattle Buyers Weekly (CBW) and write every week about the United States (US) market.

I have written CBW for the past 35 years and have been privileged to watch a colossal industry transform itself from producing beef that was often inconsistent in quality to producing the highest quality beef in the world. The industry’s productivity advances have also been enormous. The US in 1975 had 132 million cattle and calves and produced 24 billion pounds (10.9b kg) of beef. The industry in 2022 had 92 million cattle and produced a record 28.3b pounds (12.86b kg) of beef.

The industry is so enormous and diversified geographically that it has overcome every challenge it has faced in the last 50 years. These challenges have included: severe to extreme drought every 10 years or so; federal government interference in the beef market in the 1970s; the discovery of the E.coli O157-H7 pathogen in ground beef in 1993; the US’s first case of BSE in 2003, which shut all export markets for some time; and the Covid-19 pandemic.

The US meat and poultry industry faced unprecedented challenges due to the pandemic. These included labour shortages and supply chain and transportation disruptions that sharply reduced production at times. This led many in the beef industry and politicians to claim the industry needed more beef processing capacity. This was despite the fact it has ample capacity (135,00 head a day, by my calculation). The US processed 33.68 million cattle and calves in 2022.

Numbers dropping

Beef processing firms made record large profits because the reduced supply of beef could not keep up with strong demand at home and abroad. But such results are unlikely to be repeated in the foreseeable future. To the contrary, beef processing margins in 2023 and 2024 will be extremely small and might be negative at times.

This is because the supply of grain-fed cattle will decline sharply in 2023 and 2024. This year’s January 1 US cattle herd total was down 2.8 million head or 3.0% from January 1 last year to 89.27 million head. This was the lowest cattle inventory since 2015.

Drought caused the US cattle herd to shrink in each of the last four years. Last year’s big decline was also due to high input costs at ranch level. These factors forced producers to liquidate some of their beef cows. The first quarter of this year saw timely rains in many regions, so herd liquidation might end this year. However, any meaningful herd rebuilding might not begin until late next year or early 2025. When it does, fewer heifers will enter feedlots, further tightening cattle supplies for cattle feeders and grain-fed beef processors.

The January 1 inventory report saw beef cows total 28.918 million head, down 3.6% or 1.063 million head from a year ago. Beef replacement heifers a 5.164 million head were down 5.8% from a year ago. The US Department of Agriculture (USDA) estimated the 2022 calf crop to total 34.465 million head, down 2.0% from the previous year’s calf crop. Every number points to a smaller herd and better margins for ranchers with beef cow herds (who are called cow-calf operators).

On the feedlot

The American beef colossus is also seen at the feedlot level. Cattle and calves on feed for the slaughter market for all feedlots on January 1 this year totalled 14.157 million head. These cattle were in 26,093 feedlots, of which 24,000 were fewer than 1000 head in terms of capacity. Total one-time feeding capacity was 17.1 million head.

It is also important to note the vital contribution that dairy animals make to the US beef supply. On January 1 this year the US had 9.4 million dairy cows and another 4.3 million milk cow replacement heifers. The culled dairy herd produces beef in two ways: middle meat cuts and lean manufacturing beef. The latter is blended with fatty trimmings from grain-fed cattle to produce numerous ground beef products.

The second source of beef is through the raising of calf-fed Holsteins. Programmes developed in the 1970s are the same today. A calf raiser takes a day-old steer and raises it on a special ration until it is 350-400 pounds (159-182kg) and is then put in a feedlot on a regular ration. Once finished, these animals grade a very high percentage of USDA Prime and Choice. Their beef is also sought after for being of very high consistency. I have long-wondered why the New Zealand industry has not developed a similar programme to get more value out of its bobby calves.

US annual meat and poultry production is further evidence of the industry’s size. Total red meat and poultry production this year will decline for the first time in a decade to just over 107 billion pounds (48.5b kg), USDA says. Pork production will increase 2% and broiler meat 1%, but beef production will decline 5.7% due to the sharp decline in cattle numbers. USDA forecasts 2023 beef production will total 26.665 billion (12.1b kg) against the record 28.290 billion lb (12.8b kg) in 2022.

All wealth to the beef industry comes from consumers, so it is notable that beef demand at retail and food service remains robust despite an increase in food inflation over the past year. Beef has an advantage over pork and chicken at retail as average prices are trending below year-ago levels, while pork and chicken prices are trending above. Beef prices are at their most competitive in relation to the competing meats since 2017.

US consumer demand for beef, pork and chicken was strong before the onset of Covid-19 in early 2002 and became even stronger as Americans stayed at home and cooked a lot more. Beef was the biggest winner of all the meats, as consumers sought a “meat treat” in exchange for not being able to eat out for many months.

Beef retail prices eventually reached record high levels in October 2021. USDA’s All Fresh beef price averaged US$7.55/pound (NZ$5.48/kg) and its Choice price averaged US$7.90/lb ($NZ5.73/kg).

They began to decline after that and in February this year averaged US$7.23 and US$7.59/pound (NZ$5.25/kg and $5.51/kg), respectively. These were down slightly from a year ago. Prices will increase this year but will not reach the record levels of October 2021. Consumers are unlikely to be fazed by higher prices, as they already faced them in 2021.

Demand for the good stuff

Of special interest is that retail demand for high quality beef remains strong. The two largest sellers of USDA Prime beef, Costco and Walmart, both report that sales are robust. This is reflected in the price spread between the Prime and Choice beef wholesale cutouts reported by USDA each week. For the week ended September 23 last year, the spread was an all-time record of US$91.46 a cwt (50kg) or NZ$1.83/kg. The spread recently has been US$38 to US$40 a cwt (NZ$ 0.76 to $0.80/kg).

Beef exports were one of the top stories in the US beef industry last year. They topped US$1 billion (NZ$1.6b) in value most months and totalled a record 1.47 million metric tonnes (mt), up 2% from the previous high in 2021. Export value climbed to a record US$11.68 billion ($NZ18.6b), up 10% from 2021.

However, exports slowed as the year ended and fell sharply in January versus a year ago. January volume fell 15% year over year to 100,942mt, which was valued at US$702 million or NZ$1.12b (down 32%). Beef inventories swelled in some key markets near the end of last year, contributing to a challenging environment for US exports, says the US Meat Export Federation.

USDA forecasts US beef exports will be down 12.6% in 2023 versus 2022, although many question this decline as total US beef production will be down only 5.7%. The big question is whether this will force buyers of US beef to accept higher prices than they did in 2022 because no other countries will be able to make up the shortfall in US grain-fed beef supplies. US beef imports will increase by 1% this year, says USDA, and I will be watching closely to see if more NZ beef arrives here.