A monthly column written exclusively for Beef Central by US market analyst, Steve Kay, publisher of US Cattle Buyers Weekly.
DROUGHT has been the scourge of the Australian and US beef industries over the past decade (or perhaps decades). In both countries, lack of rain has forced cattle to go to slaughter prematurely, which has led to, or will lead to, sharply declining cattle numbers.
The impact on the industries’ infrastructure has varied somewhat.
In the US, the decline in numbers to their lowest level on January 1 last year since 1951 caused numerous feedlots to go empty and beef processing plants to close permanently. Australia’s sharp decline in cattle numbers the next two years might see something similar occur.
Australia’s largest-ever cattle population was 32.65 million head in 1975. That year saw the US’s largest population at 132.028m head. By January 1 last year, the total was 88.53m head. It increased to 89.8m head by January 1 this year and will show a similar increase by January 1 next year.
But this comes too late to save at least nine processing plants that have closed since the start of 2013.
Tyson Foods’ closure of its Denison, Iowa beef processing plant on August 14 continued a series of closures that rival those in the late 1990s. The nine plants represented 14,850 head of daily slaughter capacity, which amounted to 3.7 million head of annual capacity, based on 250 operating days.
The reason for the closures is shrinking cattle numbers from 2007, a decline exacerbated by massive widespread drought from 2010 to 2012.
The US cattle population had only three years of modest expansion until 2007. Then numbers fell by 8.84m head until 2014. This forced Cargill in February 2013 to close its Plainview, Texas, plant, taking out 4650 head of daily capacity. This was the largest plant to close. Three other fed beef plants closed after that.
The drought also sharply reduced beef cow numbers to their lowest level on January 1, 2014, since 1941, so five cow beef plants also closed. My data indicates that 50 US plants have closed since 1995, taking out 52,695 head of daily capacity. Only the 1998 to 2000 period saw more than the 2013 to present closures. That’s when 18 plants closed that had a daily capacity of 17,603 head.
Australia’s cattle numbers show a different pattern since the start of the 1990s but are now set to decline sharply. The total in 1991-1992 was 25 million head. It slowed climbed to reach 27.87m in 2002 then reached 29.3m in 2014-2015. But the numbers are on the decline again and are forecast to drop to 25.5m in 2016-2017.
Numbers thus will go from a 35-year high to a 20-year low in just two years.
Impact will be felt across the industry
This kind of decline will impact every aspect of the industry, with the greatest being on beef processing plants.
Australian plants have more flexibility in how they operate than US plants. They have regular seasonal shutdowns and being smaller, have smaller fixed costs. But the decline in cattle numbers will force cattle prices up and, with lower slaughter levels, will make it hard for some plants to stay in business.
That’s what has occurred in the US. Total commercial cattle slaughter in the US in 2015 will fall below 30 million head for the first time since 1963, when it totaled 27.23m head.
This year’s total is expected to be down 4-5pc on 2014. For fed beef packers, 2015 fed steer and heifer slaughter is expected to decline about 3.5pc or 850,000 head from last year.
Weekly steer and heifer slaughter this year might be as low as 442,000 head, according to analysts’ forecasts. That’s against 525,000 head back in 2010.
The largest steer and heifer slaughter going back to 1965 was in 2000, when the number averaged 580,000 head per week. Total cattle slaughter that year averaged 698,000 head per week.
The industry’s biggest-ever slaughter was in 1976 when commercial slaughter totaled 42.65 million head. Weekly cow and bull slaughter that year was nearly twice that of current slaughter levels. Cow slaughter in 1976 averaged 191,000 head per week, versus 102,000 head so far this year. Bull slaughter averaged 18,000 head per week, versus 9000 head so far this year.
Given the mid-1970s cattle numbers, US beef processing plants were designed to handle large numbers, especially compared to Australian plants.
The US still has at least seven plants with the capacity to handle 6000 head per day. Contrast this with Australia’s largest single plant, JBS Dinmore, which can kill around 3700/day.
Such numbers back then enabled US beef packers to operate five days per week on two shifts, and at least a full shift on Saturdays. But Saturday operations have steadily declined in recent years as available cattle numbers fell.
The Saturday slaughter total in the US in 2014, including holiday weeks, averaged 16,400 head per week. This was down from 26,700 head in 2013 and 45,200 head in 2007. So far this year, Saturday kills have averaged 9,900 head. Plants are also running reduced hours Monday through Friday. Tyson’s plants will run at only 34 hours per week of production per shift in fiscal 2015 and ran at 35-36 hours in 2014.
Tyson and other fed beef processors expect to operate at slightly higher levels in 2016 as fed cattle supplies increase. But this is not likely to start until March or April.
Fed beef processors will struggle to make money this year, so conjecture about closures of more US plants will continue.
Editor’s note: The Cargill Plainview processing plant near Plainview, Texas was visited by an Australian feedlot study tour group led by Beef Central’s Jon Condon during a US visit in 2009. It was regarded at the time as one of Cargill’s best-equipped, most modern and most efficient large scale beef fabrication facilities.