US agricultural data indicates the national herd is at a 60-year low, despite continuing population growth and demand for beef (see accompanying article). Cattle numbers are set to continue downwards as producers enter the northern hemisphere summer.
“Right now, with a significant period of drought, the on-going tightening of our cattle herd is really becoming increasingly evident,” he said.
He believed US producers had painted themselves “into a tight corner”, thanks to a broad combination of factors, not all entirely within their control.
Drought through much of the mid-west meant a need for rain to recharge parched soils to ensure a good grass growing season leading into the next summer.
“If this happens producers will hold on to cattle, particularly heifers, but if it doesn’t happen those numbers will hit the slaughter market because it will be too dry to keep them on farm.”
Either way the industry was damned if it did, damned if it didn’t, he noted.
Close analyses the beef and protein sectors for Rabobank’s Food and Agribusiness Research-Advisory unit. He said that although there had been a significant contraction in US corn exports, down 25% year on year, this had also been accompanied by a sharp reduction in ethanol production.
The 14% decline is the first for 16 years under the government mandated plan. The drought sent corn prices rocketing last year, crushing margins for distilling ethanol from corn. December 2012 data indicated producers were losing US36c a gallon on production of the fuel. More than a dozen processors have filed for bankruptcy.
The decline in corn exports and ethanol production had left grain-fed cattle and pig production above 2012 levels.
“These levels are going to drop in 2013 through to 2014 as the rationing in the domestic beef industry has not yet fully occurred.”
The US has also overdrawn on its Mexican feeder cattle source, adding to the decline in available beef supplies entering the US. Mexican cattle numbers are tight, and it is itself trying to recover numbers.
Canada has also been trying to stabilise cattle numbers after the Mad Cow disease issues in 2003.
“Canada is a non viable source of cattle or beef at present,” Close said.
Food security issues in the UK and Europe after the horsemeat scandal may open doors for Australian beef exports as processors scrabble to source safer supplies of beef.
“While we are yet to see the full impact of the horsemeat scenario to know who the winners and losers are in the equation, it certainly raises the question about increased NZ exports to Europe to take advantage of the drama there.”
The US has also seen processors take advantage of the weaker US dollar to export beef out of the country. In 2011, US beef exports surpassed US$5 billion. Expectations are 2012 was at least that.
The Progressive Cattleman magazine reports Japan and Korea have been recipients to major increases in US beef, up 33% alone to Japan in 2011. The volumes are still only around a third of what they were pre-BSE to Japan, and half to Korea.
Close noted the US-Europe Free Trade Agreement, while not yet ratified, had the potential to open the door for greater volumes of US beef entering Europe.
“The thing we have to realise is nowadays, we’re playing in an international market; the years of single country protein supply no longer exist.”
He believes as soon as any signs of recovery are seen, the US lean beef market in particular will tighten up “like we have never seen before”.
This would provide the real opportunity for NZ producers.
