A banner year for beef: USDA
Although the pork markets have been commanding the lion’s share of the attention of late, due to substantial supply and anticipation of several large hog processing facilities to come online later this year and in 2018, cattle and beef markets also are having a banner year, according to USDA Economic Research Service’s Livestock, Dairy and Poultry Outlook report.
The National Agricultural Statistical Service’s cattle report for July 1 estimated that the U.S. cattle herd expanded by 4 percent from July 1, 2015, to 102.6 million head, the largest headcount since 2008. This year’s calf crop is estimated at 36.3 million head, which is 3.5 percent larger than in 2016 and 6.5 percent larger than in 2015. The U.S. cattle herd began the expansion phase of its production cycle during 2014. The herd on July 1 was 6.9 million head, or 7.2 percent larger than on July 1, 2014.
Subsequently, the estimate for commercial beef production in 2017 was revised higher at 26.7 billion pounds, mainly due to relatively large second-quarter cattle placements and the impact on fourth-quarter cattle slaughter.
Based on the relatively large number of cattle available outside feedlots, USDA expects a greater number of cattle will be placed on feed in the remainder of 2017 to bolster commercial beef production in 2018. The 2018 forecast is raised to 27.4 billion pounds.
More feeder cattle
Although growth in the cattle herd implies increased availability of heifers for feeding, there are signs that slower heifer retention for addition to the beef herd may affect supplies of cattle for feeding.
Heifers in feedlots with 1,000-head or greater capacity on July 1 were up 10.6 percent from 2016, and thus far this year heifer slaughter is up nearly 4.0 percent. Although to some extent this likely reflects the large supply of heifers due to herd expansion, the number of heifers on feed as a percent of total on-feed numbers increased from 33.7 percent in 2016 to 35.6 percent.
Replacement heifers represented 14.5 percent of the cow inventory, lower than 2014-2015 but above the percentages of 2007-2012, a period of relatively strong cow liquidation.
A lower percentage of beef replacement heifers would tend to indicate a leveling-off in the expansion of the herd in 2018. To the extent that heifer retention has slowed, it will further increase feeder cattle supplies for placement on feed.
Cattle prices to soften
Based on NASS Cattle on Feed data through June 2017, net placements in feedlots with 1,000-head or greater capacity during the second quarter reached 5.5 million head, a 10.5 percent increase since 2016 and the highest since 2003. Further, based on the NASS Cattle report, the estimated number of cattle on feed in all size feedlots on July 1, 2017, reached 12.8 million head, 5.8 percent higher than in 2015. This was the highest total number of cattle on feed reported for a month since 2006.
The larger-than-expected number of calves placed in feedlots increases the likelihood of greater steer and heifer marketings late in the third quarter and early in the fourth quarter, providing an abundance of fed cattle from which meatpackers can purchase supplies.
As a result, the third-quarter price for 5-Area Choice steers is forecast lower to $113.00 to $117.00 per cwt and to $110.00 to $116.00 per cwt in the fourth quarter. Similarly, with more cattle outside feedlots, and lower fed cattle prices expected to pressure cattle feeders’ returns, the average price for feeder steers weighing 750-800 pounds is forecast lower in the third and fourth quarters to $146.00 to $150.00 and $141.00 to $147.00 per cwt, respectively.
U.S. beef exports for 2017 are revised slightly lower, and 2018 is unchanged.
U.S. beef exports during the first half of 2017 increased by 15 percent from a year ago, to 1.3 billion pounds. Beef exports were higher year-over-year in each month during the first half of 2017: January (+21 percent), February (+19 percent), March (+25 percent), April (+15 percent), May (+3 percent), and June (+12 percent). Major export destinations during this period were Japan, South Korea, Mexico, Canada and Hong Kong, together accounting for about 83 percent of total exports. Exports to Japan were up 26 percent from the same period a year ago at 402 million pounds, which represented 30 percent of the total U.S. beef exports in the first half of 2017. Higher domestic production and lower prices likely enhanced the export competitiveness of U.S. beef during the period.
Export forecasts for the second half 2017 and the first quarter 2018 have been revised downward about 1 percent from the previous month due to prospects of increasing competition from other major beef exporters, and to the anticipated impact of the recently announced Japanese Safeguard designed to raise the tariff on U.S. beef imports from August 2017 through March 2018.
Beef exports in 2017 are forecast at 2.8 billion pounds, 9 percent higher than a year earlier. This is due to greater available U.S beef supplies and to anticipated increased shipments to export destinations outside of the top five major U.S. beef export destinations. For the first half of 2017, 41 million pounds more beef were shipped to destinations outside of the top five export destinations, an increase of 22 percent compared to the same period a year earlier.
Beef Imports Down in First Half 2017
First-half 2017 U.S beef imports declined 7 percent from year-earlier levels to 1.5 billion pounds. Notable declines during the first 6 months came from Australia (down 34 percent) and New Zealand (down 17 percent), likely due to tighter domestic supplies in Oceania. These declines were partially offset by increased imports from Brazil (+42 percent) and Mexico (+31 percent).
U.S. beef imports in third-quarter 2017 are expected to be 710 million pounds, 5.5 percent below a year ago. Fourth quarter imports are expected to be 610 million pounds almost 5 percent below a year earlier. Total 2017 beef imports are forecast at 2.8 billion pounds, a 6 percent decline from 2016. Greater domestic beef supplies and continued herd rebuilding in Oceania will likely limit incentives to import beef.
Meanwhile, larger second-half supplies of hog and pork are expected to clear the market at higher year-over-year prices. Third-quarter hog prices are expected to be $57 to $59 per cwt, almost 18 percent above the same period last year. Fourth-quarter hog prices are expected to be $44 to $46 per cwt, almost 22 percent higher than fourth-quarter 2016. Third- and fourth-quarter pork exports are forecast at rates almost 9 percent and more than 6 percent above year-earlier quarters, respectively.
The 2017 export forecast for broiler meat was lowered on recent data that showed lower export levels than expected; third- and fourth-quarter price forecasts were increased due to relatively strong trends. The forecast for 2017 turkey production was reduced due to poor returns and continued softness in demand. Whole hen turkey prices were reduced as prices remain below seasonal averages.
Overall, an increase in global demand and a decline in the U.S. dollar likely contributed to favorable conditions for exports. The value of the U.S. dollar has fallen 5.9 percent since December as measured by the Price-adjusted Broad Dollar Monthly Index reported by the U.S. Federal Reserve. With the exception of U.S. exports of beef and veal, the largest share of which went to Japan, Mexico accounted for the largest share of U.S. animal product exports.