A monthly column written for Beef Central by US meat industry commentator Steve Kay, publisher of US Cattle Buyers Weekly
While summer heatwaves like that experienced in the US during July typically see consumers abandon the barbecue for air-conditioning, the US beef market is proving to be remarkably resilient this year. Retailers and restaurateurs are paying higher prices because beef sales in both sectors are better than expected. “That’s partly a function of higher quality offerings, Steve Kay says. “Nearly 80pc of all US beef is now graded USDA Prime or Choice.”
THE US beef market is proving to be remarkably resilient, even though it is in the midst of the so-called dog days of summer. That’s the time when temperatures in many parts of the country top 38 Celsius (100 degrees Fahrenheit) and the humidity is at its worst.
Many Australians also experience such weather in the summer, and it sometimes forces changes in what people eat.
Like Australians, Americans love to grill, and they are prepared to sweat it out in the pursuit of the perfectly-cooked steak or burger. But if the heat is too oppressive, they will move indoors and eat cold cuts with their salads.
US grocery store sales of fresh beef cuts and other meats decline somewhat as a result. But despite the heat, this summer has seen little drop-off, despite retail prices for USDA Choice beef being up slightly on this time last year.
Year-to-date beef production in the US is up only slightly on last year while wholesale prices are up 3pc. Retailers and restaurateurs are paying these higher prices because beef sales in both sectors are better than expected.
That’s partly a function of higher quality offerings. Nearly 80pc of all US beef is graded USDA Prime or Choice. The industry hopes that solid demand will continue, as market-ready supplies of grainfed cattle will start to increase year-over-year in September.
Beef producers and anyone in production agriculture know that adverse weather conditions have always been the biggest risk they face. Whether it is drought or floods, frigid temperatures or searing heat, producers have to deal with weather extremes that can have a significant impact on their bottom lines.
Feedlot heat stress concerns
Adverse weather conditions have played a part in this year’s US grainfed cattle market. Early July saw extremely high temperatures in parts of Cattle Feeding Country, which caused cattle feeders to sell due to concerns about heat stress on their cattle. The temperatures fortunately moderated. But this was just one example of how weather can impact feedlot performance and costs of gain.
A much bigger impact on cattle feeding up north began last winter and continued into this spring, first with a brutal winter and then widespread and devastating flooding. The lingering effects continue to impact the number of cattle on feed in the region. The four northern states that report monthly cattle on feed (COF) data – Iowa, Minnesota, Nebraska and South Dakota – continue to have fewer cattle on feed than last year. Their combined cattle on feed total on July 1 was down 175,000 head from July 1 last year. This is equivalent to losing about 3.5 days of fed steer and heifer slaughter supply in the region.
This is why market-ready cattle there are selling at a sizeable premium (as much US$5 per cwt) to cattle down south. Part of this premium includes the fact that the highest-grading cattle are in the Corn Belt and packers are paying premiums for them.
Throw in the fact that warehouse giant Sam’s Club is making a big push into selling USDA Prime beef to compete with rival Costco. The result is that the weekly price spread between Prime and Choice was a startling US$43 per cwt the week before last, although this was on a very small spot market volume. Sam’s and Costco are paying much less than this as they are on fixed pricing.
Will long term weather changes impact US corn production?
Meanwhile, corn and soybean growers know how much changing weather can impact production and crop prices, and their ability to plant crops, as occurred this spring. And it’s still very wet in parts of the Corn Belt.
Now USDA has weighed-in on the issue in regards to longer-term weather changes. Unchecked climate change could mean that the weather hurting growers this year will become increasingly common and result in lower production of corn and soybeans and skyrocketing prices, it says.
The federal government in turn would face much higher costs in terms of crop insurance.
These points emerge from a new report from USDA’s Economic Research Service. If greenhouse gases are allowed to continue to increase, US production of corn and soybeans, which are more susceptible to extreme heat during their growing season, could decline as much as 80pc in the next 60 years, says the report. As a result, corn and soybean prices would skyrocket in that period, as would the cost of crop insurance. The cost of insurance to the federal government could rise to US$7.6 billion a year for corn and US$3.3 billion for soybeans.
By comparison, USDA had spent about US$300 million on insurance for the 2019 crop year as of July 15, although latest reports suggest its spend will top US$1 billion by the end of the crop year.
The cost of the crop insurance program will increase with global warming, says Andrew Crane-Droesch, an ERS research economist and one of the authors of the report.
The ERS study examined five climate models using three projections of emissions. The models show that growers are in for more difficult springs as climate change gets more severe, says Crane-Droesch.
That’s not good news for livestock producers who depend on a reliable supply of corn and other grains.