Market Outlook
Longer term look at beef and cattle trade By David Anderson
Market updates often include weekly or monthly trade updates as new data is released. These provide valuable information about available beef supplies in the market and their impact on beef and cattle prices. But, it’s worth a longer term view of trade in the context of our cattle and beef production cycle, beef supply and demand, and policy changes. These fundamental factors will determine the overall direction of trade in coming years.
Cycles and trends The number of cattle in the United States has a well-known cycle, of about 10 years in duration, on average. As cattle numbers cycle, so does beef production, and prices on a, roughly, opposite cycle. Because of these beef production and price cycles, export and import volumes experience cycles.
Beef exports (carcass weight) have expanded over the last couple of decades. The rapid growth over period from 2004-2011 highlights the recovery following the cow with BSE discovered in December 2003. The growth occurred as testing regimes restored confidence in U.S. beef and trade negotiations re-opened markets. But, as U.S. beef production declined following the 2010-2012 drought and prices hit new record highs, beef exports dropped in 2015. As prices fell and supplies grew, trade resumed its growth.
Beef imports also show some cyclical tendencies. The majority of beef imports are boneless beef, lean trimmings that are used to make ground beef. So, imports can be greatly affected by the level of cow slaughter. Large cow slaughter during the drought increased domestic supplies of lean beef resulting in reduced imports. As the cow-herd was rebuilt, imports increased.
Trends are also apparent in trade. The long-term trend has been for increasing beef exports. Growing demand for beef, worldwide, as incomes have risen has fueled export growth.
Big picture trade factors There are a number of well known factors that determine trade levels and flows. The following is a list of a few of them that should guide our expectations for trade over the next few years.
Where to go from here? Expanding beef exports has become an important part of the U.S. beef market. About 11% U.S. beef is exported, not an insignificant amount. Exports contribute to higher beef and cattle prices. The fundamental factors above indicate some encouraging news for trade, but also some significant headwinds.
Beef prices have been relatively high in the United States over the last couple of years, yet exports have continued to do well. Growing incomes have generated demand for U.S. beef. Exports have increased to Asia, especially to China and South Korea. Inflation worldwide and growing threats of recession around the world present a serious risk to exports.
A surge in U.S. beef imports from Brazil have been due, in large part, to restricted access to the Chinese market because of BSE regulations. This is a case where trade policies, disputes and regulations between two counties have caused ripple effects in the U.S. market. Renewed access to the Chinese market will likely reduce U.S. imports. High lean beef and cow beef prices in the United States will continue to attract imports.
Changing beef production in North America is shifting beef and cattle trade. For example, the growth of feedlots and investment in new packing plants in Mexico is contributing to increased beef exports from Mexico to the United States. Recently, fed cattle exports from the United States to Mexico have increased as South Texas feeders receive higher prices for some of their Brahma cattle than they do from U.S. buyers. That will be a trend that bears watching as declining cattle numbers in the United States may result in higher prices to keep those cattle here.
The ongoing drought in the western half of the United States, including Texas, will be a major factor in trade in coming years. The drought is forcing large numbers of beef cows to slaughter.
Beef production is expected to drop dramatically in the coming few years. Falling production will keep prices high, encouraging more imports, especially of lean trimmings for ground beef, and pressuring export growth.
On balance, it’s likely that beef exports will remain historically large. They may not grow much but will remain supportive of cattle and beef prices. The smaller cow-herd will result in less lean beef produced and more imported beef. It’s likely that imports will exceed exports by volume over the next couple of years.
This article has focused on the volume of trade by weight. Some of the same observations could be made by looking at the value of trade where the United States has run a trade surplus in beef products for many years.
These big picture, fundamental trade determinants provide a longer term view of trade directions that is sometimes obscured by focusing on weekly or monthly data.
Anderson is a professor and Extension economist in the Department of Agricultural Economics at Texas A&M University.
U.S. Feeder Cattle Exports Significantly Influenced by Demand for Proven Genetics By Beef Improvement Federation
“The power of the pedigree is what drives the interest in U.S. demand,” said Tony Clayton, Clayton Agri-Marketing Inc. president. Clayton gave his presentation titled “U.S. Genetic Exports: Where Are They Going and How Are They Doing?” during the Beef Improvement Federation (BIF) Symposium June 3 in Las Cruces, New Mexico.
Clayton explained the impact of exporting U.S. feeder cattle to open new marketing opportunities that increase profitability and particular obstacles producers face when exporting feeder cattle.
Drivers of U.S. cattle export demand The export market is driven by population growth, urbanization and expanding economies. The main driver is population growth and people drive the demand for agricultural products. The current demand is protein, meat and milk. This increased demand has opened the market for the genetics produced in the United States.
U.S. genetics are a value-added product thus, international producers want to adopt U.S. genetic systems. He explained the years U.S. producers and breed associations have spent performance testing and developing expected progeny differences (EPDs) and genomics, has producers around the world looking to the U.S. as a leader in production of all species. Pedigrees of U.S. produced cattle have immense power to continuously strengthen the demand and export market.
“I explain to a lot of our clients that buying genetics with high genomics and EPDs is like buying a car. If you want the sunroof, it costs money. If you want the aluminum wheels, they cost money. We have a lot of misinformation out there and we work with clients to educate them on our genetic systems,” Clayton said.
Know your cattle, have a marketing plan Developing a market to export your cattle requires intense promotion, a large supply of cattle, available financing, following government regulations, understanding logistics and being able to manage risks. You must know your limitations.
What can you supply, deliver, finance and guarantee? Know your products, customers and suppliers. Producers must implement animal identification systems and an animal welfare program to increase prices of their cattle.
“When I go to a new country, I would plan for it to take three years before I make a sale. This business requires patience,” Clayton discussed.
U.S. feeder cattle exports The export of U.S. feeder cattle is influenced by the demand from Asia and the Mid-East for protein. China continues to import cattle from the southern hemisphere taking a large supply of the world market to Indonesia, Egypt and Israel.
However, there are many obstacles for feeder cattle exports. The U.S. must have a large supply of cattle to be exported and remain competitive, there is a lack of livestock export facilities on both coasts for large shipments, and specific geographical health requirements can prevent certain regions from exporting feeder cattle.
“Another obstacle is customers in the Mideast only want to feed bulls, they will not feed a steer. It will be interesting to see if they put these ethic specifications aside in the future to buy steer calves from the U.S. and not bulls from South America,” Clayton added.
