A new year always begins with challenges and opportunities, and 2018 will be no exception. This year will see beef production increase an estimated 5 percent from last year, adding to a red total red meat and poultry supply of 103.5 billion pounds. If realized, this would be up 3.4 percent from 2017’s total.
Early signs are that the industry will successfully dispose of this record tonnage, as it did last year. I examined several key factors for this in last month’s column (WLJ issue Dec. 4, pg. 2), so I won’t repeat them. I want to focus instead on other challenges and opportunities that await the industry.
The biggest challenge on the supply side is to keep marketing fed cattle aggressively to minimize the larger supply coming from now into the summer. The latest Cattle on Feed report was bearish in terms of numbers and reinforced the fact that marketings must accelerate. November placements were 14 percent higher than in November last year, which put the December 1 cattle on feed population 8 percent higher than a year ago. It was the largest Dec. 1 total since 2011. Feedlot placements have now been above a year ago for nine months in a row, and December placements are expected to be above year ago levels as well.
Steer and heifer carcass weights are also a big concern. The best-ever feeding conditions last summer and fall meant cattle performed at record levels, with average weight gains often over 5 pounds per day. Steer and heifer carcass weights thus advanced in early December beyond their seasonal highs. For the week ended December 9, steers averaged 904 pounds, down 4 pounds from the same week last year, but heifer weights averaged 846 pounds, up 5 pounds. The heifer weights were record high for this reporting week. The live weight of some cattle was as much as 75 pounds above projections.
Carcass weights are now declining. But analysts say the later seasonal top means they will likely decline at a slower rate than normal into the spring.
The industry is poised to produce 1.7 billion pounds more beef this year than in 2017. So strong beef demand at home and abroad will be even more important. The continued growth of the U.S. economy, low unemployment, and rising wages for the lowest-paid should help domestic beef sales remain robust. But Americans will also have much cheaper pork and chicken to choose over beef. So, exports will need to grow even more than they in 2017.
Beef exporters will look particularly to Japan and South Korea. Both countries have the strongest economies in Asia and their consumers love U.S. beef. Japan alone contributed more than half the 14.3 percent—or 293 million pounds—growth total U.S. in beef exports for January through October 2017, notes USDA’s Economic Research Service (ERS). Higher shipments to Japan have continued even since the Japanese safeguard tariff was raised from 38.5 percent to 50 percent on U.S. frozen beef, starting last August, it says.
Many industry watchers felt that if export growth was to be maintained, substitution between fresh/chilled and frozen would occur, says ERS. But the data shows that beef export growth to Japan continued to increase well above 2016 levels. Surprisingly, the ratio of frozen to fresh/chilled beef exports to Japan since August has increased, suggesting that a higher proportion of frozen beef is being shipped there than prior to the imposition of the tariff, says ERS. I suspect that gyudon (beef bowl) chains who widely use U.S. short plates were responsible for this.
Meanwhile, South Korea is ripe for importing more U.S. beef than ever before. U.S. beef exports to Korea in Fiscal Year 2017 (ending Sept. 30) accounted for $1.21 billion of the $6.87 billion of total food and agricultural exports in the year. This total made Korea the U.S.’ fifth largest market for food and agricultural exports.
Beef exports were $289 million or 32 percent higher than in Fiscal Year 2016, says USDA’s Foreign Agricultural Service (FAS). This made Korea the second largest value market for U.S. beef and beef products. FAS cites several factors for the increase, including: local economic growth, U.S production conditions, local consumer preferences, and Korea-U.S. Free Trade Agreement (KORUS)-related access benefits.
FAS notes that beef was long considered a luxury food item in Korea. But consumption has grown tremendously from its status as a “twice a year” food, to something consumed nearly every day. That said, beef continues to have a special place in the hearts of local consumers, it says. Despite strong growth in per capita consumption over the past several years, Koreans still eat only a third as much beef as Americans. This implies plenty of room for significant future growth, says FAS. That’s exactly what the industry needs this year and next. — Steve Kay
