A bigger picture – Lenz says global economy dramatically impacts markets

Loveland, Colo. – International markets play more than just a peripheral role in the cattle industry, according to Duane Lenz, an analyst with CattleFax.

“Everyone wants to talk about world markets and exports. Why do we care? It means a lot of money on the export side,” he said during Range Beef Cow Symposium XXIV on Nov. 19. “Last year, exports added about $352 per head on a fed cattle basis. That is about $70 per hundredweight.”

Lenz further noted that projections estimate exports will contribute $500 per head by 2020.

“As we go through herd expansion, there is more beef, and if we can retain $500 per head, that will make a huge difference,” he added.

Trade agreements

Of particular note, currently, the Trans-Pacific Partnership (TPP) is an important agreement for the beef industry.

“It is important that we get TPP through,” Lenz said. “It levels the playing field for beef and lowers quotas to levels that are more in kind with other countries. We are pushing hard to get TPP.”

“It will give us a boost to the next level,” he added.

Though the agreement opens trade both ways, also allowing more imports into the U.S., Lenz explained that there is a need to bring in trim and allow the U.S. to sell muscle cuts to consumers around the world. The majority of the product imported to the U.S, he said, is lower quality cuts that go into hamburger and the fast-food industry.

Population impacts

The global market also continues to be of high priority in light of population growth predictions.

“In 1800, we had 1.6 billion people, and there were 2.4 billion by 1950,” Lenz said. “By the year 2050, 9.1 billion people are expected. That is a big deal. Who is going to feed them all?”

He continued, “Right now we are struggling to feed 6.8 billion. Who is going to feed them? Hopefully it will be beef producers.”

Lenz further noted that the middle class will grow exponentially, from 2 billion in 2012 to nearly 5 billion in 2030.

“By 2030, the middle class will have 4.8 billion people, and they will spend $32.6 billion on food,” he noted. “We need to get a piece. That will keep prices firm, and, in our belief, it will help everyone bring home more money.”

This year

At the same time, Lenz commented that gross domestic product (GDP) is also increasing.

“When we look at GDP and per capita annual growth, we can see cumulative growth in China,” he said, noting that incomes increased 250 percent from the year 2000. “Next is India, and it has doubled.”

The third highest growth since 2000 is seen in emerging markets.

“Those are the smaller countries that have never had much money,” he explained. “They are starting to grow, and there are a lot of people who will have money they have to spend someplace.”

Further data shows that, as per capita income rises, meat consumption increases.

“When people get more money, what is the first meat protein they go to first? Probably fish because it is readily accessible,” Lenz explained. “Then they go to poultry, then pork, and then they move into the top tier – they go to beef.”

China

In particular, Lenz noted that China’s consumption will continue to increase rapidly.

“China is so important,” he said. “They eat so much meat, and there are so many people. Their production has been fairly flat, and their consumption continues to rise. They have to fill that void.”

Those in the cattle industry get excited about the potential in China because, of the 1.3 billion people in the country, 600 million are peasant farmers.

“Per capita income in China in 2000 was $1,000,” Lenz explained. “In 2012, it was $3,350, and it is predicted to double by 2020 to $6,050.”

At the same time, the top 15 percent of their population makes $5,000 or more annually.

“That is 150 million people, which is the equivalent of the U.S. doubling their income in the next five years,” he said. “That would be pretty exciting, wouldn’t it?”

The increase in the middle class adds excitement for the industry. 

“The middle class in 2012 was 300 million, but that is projected to be 640 million by 2022,” Lenz added. “A big increase is coming up.”

Exporters

On a global scale, the U.S. and Brazil account for 51 percent of beef exports.

“The European Union, India, Canada, Australia and others are next,” Lenz said. “The top importer of meat is Greater China, which isn’t a lot of beef, but it is a heck of a lot of pork and poultry.”

Of the beef that is imported around the world, only 15 percent is grain-fed.

“That is our market,” Lenz commented. “Grassfed beef is about 71 percent, and that is what the world produces.”

He continued that growth has been seen recently in buffalo from India, which are considered bovine.

Australia, which has been in devastating drought over the past several years, has provided a large source of beef for the U.S.

“They have gone through drought and they liquidated their herd,” he said. “They will rebuild the herd, to drop imports to the U.S. and support beef prices around the world.”

Summary

With a growing world economy and tightening global beef supplies, Lenz said, “Prices have gone up sharply as the world has cried out for more beef.”

“We have tightening global supplies, increases in global demand and price inflation. We are very bullish,” he continued.

The global beef market holds strong potential for the U.S. cattle industry, and Lenz commented, “The global opportunities are great. We’re talking billions of dollars, not millions. The global potential for U.S. beef is very good.”

Meat Production

Looking at global meat production, CattleFax Analyst Duane Lenz noted that China is the top meat producer in the world.

“China doesn’t produce a lot of beef, but they have an awful lot of pork and broilers,” he explained. “In the U.S. and Brazil, we see more beef.”

Looking around the world, India has seen growth in their production of buffalo, which is sold as beef despite religious challenges. Brazil has also grown, and China has seen minor increases.

“Other major countries have been flat,” Lenz said. “We see drops in Canada, the European Union and the U.S. Many countries are flat or a little smaller.”

Saige Albert is managing editor of the Wyoming Livestock Roundup and can be reached at saige@wylr.net.