Kay’s Cuts: A tale of two continents

Steve Kay, 09/02/2022

A monthly column written for Beef Central by US meat and livestock industry commentator Steve Kay, publisher of US Cattle Buyers Weekly





AUSTRALIA and North America are thousands of miles apart. But what happens in the beef industries on the two continents helps shape the global beef trade. Right now, events in Australia and the US are moving in opposite directions.

The Australian cattle herd is in rapid rebuild mode after devastating drought finally came to an end. Meat & Livestock Australia in its annual Projections forecasts that the national herd will increase by 1.1 million head this year.

Meanwhile, Australian beef exports had a challenging year in 2021 and fell well short of 900,000 tonnes, their lowest level in at least 36 years, as herd rebuilding took full effect. Exports this January fell to one of the lowest monthly figures on record because of the spread of the omicron variant and its impact on processing capacity, as Beef Central’s Jon Condon noted last week.

In stark contrast, drought across parts of the US and high costs relative to calf prices took a bigger than expected bite out the US cattle herd in 2021. The declining numbers reflected a third year of liquidation of the US cattle herd, with prospects of a fourth year in 2022.

The January 1, 2022 total inventory at 91.902 million head was down 1.88 million head or 2 percent from January 1 2021. Analysts had expected the herd number to be down 1.2pc. While the herd numbers have no direct bearing on current cattle prices, they are likely to positively impact the price of all classes of cattle as the year progresses, say analysts.

Also in stark contrast, US beef exports smashed their all-time records for volume and value in 2021. Official data is not yet available for December exports. But through 11 months, US exports were on a record volume pace at 1.32 million metric tons. Beef export value, which had already set a new annual record through October, increased more than US$2.5 billion from a year ago, soaring 39pc to US$9.59 billion.

USDA’s inventory report also showed that beef cow numbers at 30.125 million head were down 719,000 head or 2.3pc from the prior year. Analysts had forecast a decline of 2pc. USDA put the 2021 calf crop at 35.085 million head, down 410,000 head or 2.1pc on a year ago. The crop could shrink again in 2022 by at least that amount, says Andrew Gottschalk,

Another important number was that the feeder cattle and calf supply outside feedyards on January 1 was down 677,000 head, which Gottschalk says is the lowest number since the cyclical low in 2015. As the feeder cattle and calf supply outside feedyards shrinks, US feedlots will be forced to pay up for feeder cattle and calves.

With the wheel of leverage returning to the fed cattle sector as those supplies decline, demand for feedlot replacements will gain momentum, he says.

Direction of US cow herd

The report is particularly important this year as a longer-term indication of the direction of the beef cow herd, given drought conditions, pandemic market turmoil and relative cattle prices and costs, says David Anderson, Texas A&M University. Of most interest to him were the cow herd and replacement numbers. The number of beef cows in the US was the fewest since 2015. The decline from 2021 was the largest year-to-year decline since the 860,000 head decline from 1996-97.

It is interesting to note that the report included a significant revision to last year’s beef cow inventory, reducing it by 314,000 head, he says.

Drought certainly contributed to falling US beef cow numbers, says Anderson. Cow slaughter in 2021 was well above 2020.

But cow numbers declined in regions not affected by drought. Calf prices relative to costs forced some more culling. The inventory report indicates the industry is headed towards less beef production and higher prices, he says.

A cow herd of this size should also lead to some expectations of calf prices approaching the rarified air of the years following the Texas 2010-2012 drought. The current drought and its development over the coming months will dictate a lot about the size of the cow herd this year. But good beef demand should also pull prices higher on top of available supplies, he says.

Texas remains far in front of other states in terms of total cattle and beef cow numbers. Its cattle and calves total on January 1 was12.7 million head. This was down 400,000 head from the prior year. Second was Nebraska with 6.8 million head, down 50,000 head. Third was Kansas with 6.5 million, also down 50,000 head. Fourth equal were Oklahoma and California with 5.2 million, down 100,000 head and up 50,000 head, respectively.

The top five beef cow states were somewhat different. Texas on January 1 had 4.475 million beef cows, down 160,000 head on a year ago. Oklahoma had 2.131 million beef cows, down 28,000 head. Missouri had 1.941 million, down 94,000 head. Nebraska had 1.832 million, down 498,000 head, and South Dakota 1.61 million, down 189,000 head. This was easily the biggest year-on-year decline of any state.

US beef export volumes will likely remain high for at least the first half of 2022. But the smaller beef cow herd and calf crop will eventually affect the US’s ability to maintain its 2021 export levels.

That’s good news for the Australian industry, particularly in the key markets of Japan and Korea.







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