Wednesday, April 24, 2024

Will 2024 bring a bullish US beef market?

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Herd rebuilding in the US was widely expected to tighten supply this year. Instead slaughter rates have approached record levels.
Mel Croad says data from the US has shown a distinct lack of herd rebuilding in the first six months of this year, with beef cow slaughter in the key market soaring.
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There was widespread anticipation that the United States imported beef market would have delivered strong returns this year. This was based on tightening supplies as the US moved into its herd rebuilding phase. 

While there was some good upside earlier on, it couldn’t be maintained, and current imported prices have fallen below five-year average levels. The only hope is what didn’t eventuate this year will come to fruition next year.

Data for the first six months of this year showed a distinct lack of herd rebuilding. US beef cow slaughter was the second highest in 30 years, just falling short of 2022’s record. It was also supported by a significantly higher US dairy cow slaughter because of falling milk prices. 

Overall beef cow slaughter rates are lower than last year, but they are still vastly higher than historical patterns. US beef cows have been the largest casualty of lingering drought conditions. This will have lasting implications for the US beef supply and eventually positive outcomes for imported beef demand. 

US domestic cow prices are currently sitting just shy of US$3/lb. In contrast, US imported beef prices have struggled to gain any pricing traction. A wave of much higher volumes from Australia and New Zealand hasn’t helped. 

In the seven months to the end of July, these two countries combined shipped an extra 75,000t of beef into the US compared to the same period last year. Indications from the US point to a further surge of Australian beef thus far into August. 

These higher imported beef supplies dampened demand and contributed to a wide spread between US domestic and imported prices. 

Armed with choice, higher supplies of fresh domestic lean beef with its multiple use options have been favoured over frozen imported beef, which is generally only used in the foodservice sector – a sector that has struggled with high prices and reduced spending this year.

Every piece of data out of the US points to lower cattle numbers over the next few years, be it cow and calf numbers, feed lot numbers or even cattle outside of feedlots. 

The US Department of Agriculture July inventory saw all cattle and calf numbers drop by 2.7 million head since July 2022. An 800,000-head drop in beef cow numbers, combined with a 600,000-head drop in heifer numbers, points to even tighter calf numbers in 2024 and 2025. Ultimately this will head to lower beef production within the US. At some point, based on weather conditions and profitability, US farmers will start to rebuild cattle numbers, which will further tighten production. 

The estimated inventory of US beef cows on July 1 was 29.4 million head. The last time the beef herd fell this low was in 2014. Back then the drop in availability created a positive pricing environment for imported beef as the US needed to offset their production shortfalls.  

By mid to late 2014, buoyed by strong export demand, NZ bull and cow prices climbed over $4/kg and $5/kg respectively, with prime prices also following suit. While hard to imagine now, this was pushing into new pricing territory back then. Those higher prices were maintained until covid-19 appeared in early 2020. 

The key is if the US is facing large production lows from next year then, as US beef supplies start to run thin, the country’s reliance on imported product will return. This leads many to expect 2024 will be a solid year for US imported beef prices. All going to plan, this bodes well for stronger farmgate returns through 2024. 

There is a risk we may not see the pricing reaction of days gone by. This is simply because external factors continue to exert more influence on the general market than through the last rebuild phase. Drought, increased Australian supplies and Brazil’s production all remain additional wildcards. 

Despite this, the prospects are looking decidedly stronger than this season. The question is, will we have the beef numbers available to fully capitalise on this brighter outlook?

This article was written by AgriHQ analyst Mel Croad. Mel reports provide key insights into what makes our sheep and beef markets tick. Subscribe to AgriHQ reports here.

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