CattleFax: ground beef demand is driving cow slaughter, cull cow prices

Laramie – “This is the fourth straight year the world has produced less and less beef, and we’ve got to double beef production by 2050. We’re going in the wrong direction,” said Brett Stewart of CattleFax at the Wyoming Cattle Industry 2011 Convention and Trade Show in Laramie on June 3.
Stewart said that, in data tracing back to 1960, never before have there been four consecutive years of declining beef production.
“In two years the global beef price went up 50 percent,” said Stewart of the Global Meat Price Index. “This isn’t over – there are more increases ahead, and not just for beef, but also for pork and poultry.”
Stewart said he and his colleagues have had many discussions as to whether the cattle cycle is dead, and if it’s a waste of time to try to understand it.
“Generally, no. I don’t think it’s dead. If we get the right price incentive, we’ll do this again and overproduce based on what our market will bear, but I don’t think the price is there yet. I think it will take higher prices to stimulate production to the levels that will drive a cattle cycle.”
Stewart said a few factors that drive herd size are weather, cow slaughter, margins, heifer placements and land use.
“One in five cows lives in Texas, and one in four cows if you include Oklahoma, so one-quarter of our cowherd is in tough shape right now,” he said of the drought in the southern U.S.
Of cow slaughter, Stewart said the trend is increasing.
“Not because markets are bad, but because prices are so high. Cull cow prices are in the $70 and $80 range, and at this rate meat bulls will be worth more than breeding bulls,” he stated.
Stewart also noted that one of the reasons why is that 90 percent lean beef – which is used for hamburgers and fast food grinding meat – is cheap, and the U.S. is still in a recession. Also, he noted that Australia is the biggest supplier of imported lean grinding beef, but, with the Australian dollar’s current record high levels, the U.S. can’t afford to buy it.
“The next alternative is to chase cull cows to keep fast food hamburger going,” he said. “That’s driving that cull cow price, which is driving our cowherd.”
Of the utility and slaughter cow price, Stewart said. “We’ve spent time above $80. It used to be we’d get 30 cents per pound, and sometimes 25, and now we’re seeing them up over 80 cents. That’s unfathomable to me – it’s incredible to me that we’ve been able to do what we’ve done on the back of lean grinding meat. Our middle meats are still pretty weak, and restaurant cuts are having a tough time, but it’s amazing how much water we’ve carried through higher hamburger demand and higher exports.”
To gauge whether the industry is expanding or contracting, CattleFax collects on-feed data from 60 to 70 percent of cattle on feed, tracking what percentage of cattle placed on feed are heifers.
“When the heifer placement number gets above 35 to 37 percent, we’re contracting the cowherd and placing more of those heifers on feed, and when we get down below 33 percent we’re typically in an expansion phase. The last four years we’ve marched higher and higher, and this year, at 35 percent, is an improvement,” said Stewart. “We haven’t said we’ll build the cowherd, but we’re not killing them as fast we we’ve killed them in the past. We’re still a long way from expanding the cowherd.”
As of Jan. 1, 2011, Stewart said the cowherd was down half a million head, and by Jan. 1, 2012 he expects numbers to be down another 300,000, or another percent.
Although the total cattle inventory – including cows, calves, dairy cows, etc. – has consistently declined, peaking at 130 billion in the 1970s before dropping to today’s 92 billion, beef production numbers show the industry has done a good job at increasing efficiency.
“One of the greatest untold stories in the U.S. today is the incredible efficiency gains of U.S. agriculture,” said Stewart. “Yet, we get beat up in the press over methane, carbon emissions and overgrazing.”
Of imports and exports, Stewart said in 2004 the U.S. imported almost four billion pounds of beef while exporting half a billion pounds.
“Today we’re exporting more beef than we’re importing, and back to 1980 we’ve never exported more beef than we’ve imported,” stated Stewart. “That number will grow to 2012 and beyond – we may go to a point where we’re never a net importer again, if we can get the right access, because of the growing global demand for beef.”
Stewart said the U.S. is looking at exports up 14 percent this year, while imports decline four percent, based on the Australian dollar year-to-date.
As a gauge of what exports are adding to the industry, Stewart said to look at beef export dollars per steer or heifer slaughtered.
“If we take the total dollars exported in beef, including offal and variety meats, and take that dollar monthly divided by the steers/heifers slaughtered, we’re up over $200 per head,” he said. “We’re exporting 10 percent of our production and getting 20 percent back through that trade. That’s an indicator of how strong the global demand is.”
Stewart said all the components – production, supply, import, export, carcass weight – are all included in per capita net beef supply, or production plus imports, minus exports, divided by the population of the U.S.
“This is the beef that will be on the plate of American consumers. For 20 years Americans ate about 65 pounds of beef per year, but in the last five years they’ve taken almost 10 pounds off the plate, and that’s a big shift,” said Stewart, adding that much of that is due to trade, tighter imports and larger exports.
“Exports are critical,” he said. “We talk about growing global demand, and say that the whole world is out of beef, but it’s a lot more complicated than that because of political barriers. We have to get much better at access to countries.”
Stewart said the U.S. is not good at consumer marketing overseas.
“When traceability was a buzzword in the late ‘90s, how long did it take Australia and New Zealand to become traceable? They voluntarily did it almost instantly, as well as Argentina, Uruguay and Brazil. Pretty much every major beef exporter on the planet has traceability, and has had it for 10 years – not because they had to, but because the international market said they’d like it,” explained Stewart, adding that the two who don’t are the U.S. and India, which is the fifth-largest beef exporter.
Stewart calls it a 90/10 problem, where only 10 percent of U.S. production is destined for overseas, so the country doesn’t spend a lot of time thinking about how to best market. Australia and New Zealand export 70 to 80 percent of their beef, so they spend a lot of time thinking about international demands.
“That’s what we need to think about if we truly want to participate in the global community,” said Stewart.
Christy Martinez is managing editor of the Wyoming Livestock Roundup and can be reached at christy@wylr.net.