The United States beef market is delivering some interesting dynamics that we haven’t seen for several years. After a few false starts, beef production is finally feeling the impact of years of drought-induced herd liquidation.
Not only are cattle slaughter and therefore production volumes sliding, but US stocks of beef in cold storage – usually a useful backup – are the lowest they have been in years.
For those in the game long enough, the current dynamics playing out in the US beef market should spark some optimism. Not since 2014 have we seen a combination of these factors driving the market.
US beef production is on a slippery slide and there is no immediate fix. Admittedly, external volatility has shaped the global markets in recent years, making it somewhat challenging to align current fundamentals with previous years. But there is no reason New Zealand beef producers shouldn’t benefit from this firming demand period.
AgriHQ’s latest outlook points to pricing upside in the months ahead for beef, based on these fundamentals. But as we have seen with any pricing lift, it’s not always about how long they last, it’s about being prepared for when they happen so the benefits can be enjoyed for longer. And that means early on-farm decisions are key.
In 2014, US beef production was heading to a 20-year low amid favourable feed conditions that were the catalyst for herd rebuilding. The gap in US production made way for higher supplies from overseas, while still supporting a strong run-up of both domestic and imported beef prices.
This occurred even though consumers were beginning to find beef pricey. In 2014 and 2015 Australia shipped record volumes of beef into the US, lifting to either side of 400,000 tonnes. NZ also managed to ship 230,000t in the 2014-15 season, far above anything shipped there in recent years.
This year, the sudden fall in US cow slaughter and production rates has resulted in a remarkable lift in US domestic 90CL cow prices, surging by US90c/lb since January. Typically, the upside is more like 16c/lb.
US imported beef prices have lifted by US 42-48c/lb since January, which is similar to this time last year. Farmgate bull prices are currently the same as a year ago.
The fast-paced changes in US beef production have caught some US end users on the hop. The need to secure supplies of beef has pushed prices higher. A further demand boost leading into peak grilling season in the US should ensure a good run to spring, price-wise.
A year ago, the market was driven higher by the expectation that US lean beef supplies would topple over. That didn’t eventuate to the extent expected and demand failed to fire – a hangover of the economic implications of covid. This resulted in an early peak in US demand and a subsequent drop in imported beef prices and farmgate returns here.
This year those factors appear to have changed. US domestic cow supplies are indeed tanking and will continue throughout 2024. There will be no last-ditch surge in US beef production, rather a greater reliance on imported beef to fill the gaps.
US economic data suggests a settled outlook with the possibility of some subtle growth, which should lead to improved consumer confidence. There are always risks involved when prices lift so quickly and as we have seen in recent years demand is very quick to react to outside influences.
This raised awareness does bring a level of caution in creating an overheated market but there is little to indicate the market has reached that point yet.
