Boxed beef prices remain high under the circumstances: $319 for Choice and $35 less for Select. And we’re producing more beef, year to date. These past few weeks have been a struggle processing cattle. A fire here, maintenance issue there… It doesn’t seem to take much to slow these big packing plants down. But packer margins remain high.
Cattle should be in short supply soon, and I would expect markets to operate on the fundamentals. The crazy thing about this beef market is the export markets, especially China. They really blew it for their population’s pork supplies with African swine fever. Not to mention COVID-19.
China has suddenly become one of the United States’ major exporting countries for beef and veal. Japan and South Korea are still our best customers, but China exports are up a whopping 1,091 percent over a year ago—that’s 282.76 million pounds. China doesn’t seem to be getting ahead on their pork production. But it looks as if they are developing a taste for U.S. grain-fed beef and variety meats.
The World Agricultural Supply and Demand Estimate raised its U.S. beef export number to 3.41 billion pounds on Friday, driving exports to a whopping 16 percent above a year ago and 8 percent higher than the previous record-high annual figure in 2018. Trade data has been released through July, which provides us enough volume for about 58 percent of the annual estimate. It’s simple math: Subtracting current volume for USDA’s estimated total implies they are expecting a 9 percent increase in volume for the August to December timeframe over 2020.
Weekly beef exports provide a barometer for August data ahead of the USDA Foreign Agricultural Service’s monthly trade release. Those indicate exports are up 6 percent from last year. Based on the early trade volume this year, it appears the U.S. will have a record export year.
China was one of the first areas we limited continued growth, but it’s also the biggest wild card. High U.S. beef prices appeared to only slow the rate of growth earlier this summer.
The Daily Livestock Report assumes China will remain under 60 million pounds for the remainder of the year. Other scenarios included limiting purchases by Mexico to only 5 percent above a year ago, and rest of world purchases; increasing Canada and Japan slightly from where their current purchase level has been; and limiting South Korea and Taiwan to purchases even with last year.
The atypical BSE cases found in Brazil are also worth noting and will further boost U.S. exports, particularly to China. Other countries are rumored to have followed suit and are also putting restrictions on Brazilian beef. After running through these scenarios, the conclusion was that U.S. exports will need to slow significantly to hit USDA’s target from the pace they have currently been on (21 percent up from 2020).
Several destinations will need to purchase less in the last five months of the year than last year to reach the USDA number. That doesn’t mean it’s not plausible. Livestock Marketing Information Center estimates for trade are below the USDA figure by about 100 million pounds, which would require an even greater deceleration of purchases, but would still be a new record high and 12 percent above 2020.
The takeaway remains that U.S. beef exports are expected to have double-digit growth in 2021 and would need a substantial change in pace to not achieve that number.
And then let’s look at the hide and offal value, which has doubled since a year ago to $15.46. This adds over $200 to the value of a fed steer. Clearly, U.S. beef access to foreign markets is positive; there are estimates that foreign beef sales have added over $300 to a fed steer. I see this as nothing but a growth market to U.S. beef producers.
Our only problem is getting enough capacity utilization in U.S. packing plants; these packers are frustrated, just like cattle feeders, at the speed this industry is moving.
The boys at Western Video Market must be getting tired of plant fires before one of their big sales. This year, JBS at Grand Island, NE. Two years ago, Tyson’s Holcomb, KS, plant. Talk about bad luck. So, let's pray for rain. — PETE CROW