US beef’s production wave

Key points

• Following four consecutive years of expansion, the US cattle herd has now reached its largest since 2009.
• Cattle on feed increased 7% from last year, and is now at 14 million head.
• US beef production is projected to exceed 12.5 million tonnes this year.
• Red meat and poultry consumption is forecast to reach record levels in 2018 at an estimated 121kg per capita, with beef consumption accounting for an estimated 37.1kg per capita – the highest beef consumption figure since 2010.

Cattle supply

The United States Department of Agriculture (USDA) released the 1 January cattle inventory report last week, with the US herd reported at 94.4 million head, up 0.7% on the previous year – the smallest margin of increase since 2015. However, following four consecutive years of expansion, the US herd has now reached its largest since 2009.

Beef replacement heifers were down 4% from year-ago levels at 6.13 million head – an indication producers are scaling back their intent to continue expanding the herd. The beef cow herd contributed to the overall expansion, up 2% over the same period, and subsequent growth in the calf crop, which increased by the same margin.

Cattle on feed increased 7% compared with last year, at 14 million head according to the report estimates. The USDA National Agricultural Statistics Service cattle inventory report includes feedlots with a capacity less than 1,000 head, in contrast to the monthly USDA cattle on feed report, which only captures feedlots with a capacity of more than 1,000 head.

More cattle have been placed into feedlots earlier than would normally be expected, bolstered by low feed costs and robust domestic demand helping to sustain aggressive marketing rates. However, the principle reason has been poor moisture conditions in a number of the largest cattle producing regions, along with sustained drought conditions in the Northern Plains. Approximately 60% of the continental US is currently in a state of drought. Furthermore, the supply of feeder cattle declined 2% from year-ago levels, which could imply lower placements in the coming months and provide support to cattle prices in the last quarter of 2018. CME feeder futures contracts for the second half of 2018 lifted 2% on the week prior.

Production and domestic consumption

US beef production is projected to exceed 12.5 million tonnes this calendar year, supported by the aforementioned deteriorating pasture conditions, which have supported higher placements on feed in recent months. US beef exports are forecast to grow close to 5% this year, supported by increasing production and robust global demand for beef. Furthermore, the prospect of a lower US dollar could provide support to exports during the year.

However, domestic demand remains strong and positive retail features continue to support this view. Recently released data on United States Department of Agriculture (USDA) cold storage stocks indicate that as of 31 December 2017, frozen boneless beef inventories in the US were down 15% year-on-year; however, 7% higher than the five-year average at an estimated 203,000 tonnes. This suggests that beef demand remains in good shape, with beef supplies moving through to retail and not building up in cold storage.

According to the latest USDA market outlook, red meat and poultry consumption is forecast to reach record levels in 2018 at an estimated 121kg per capita, with beef consumption accounting for an estimated 37.1kg per capita – the highest beef consumption figure since 2010. Growing consumer confidence and an overall improving economy has also supported demand for beef from domestic US consumers.

Despite increasingly popular plant-based diets and competing proteins - pork and chicken production is forecast to increase 5% and 2%, respectively - the US consumers’ appetite for beef shows no signs of slowing down in 2018.  From an Australian perspective, if USdomestic consumption can keep pace or exceed the rate of increased US beef production, it would help mitigate the impact of greater volumes of US beef entering our key export markets, particularly Japan and Korea.