Report: US hungry for world's best beef

The US, the world’s second largest importer of beef after China, is likely to be looking for even more beef from global markets over the next three years, as its own domestic production declines, Rabobank says in a newly released report.

While Australia is among the major global beef exporters that could help fill the gap, it will be challenged to find additional export volumes due to its own supply constraints.

The report says that production constraints mean international markets will struggle to meet the gap left by the US contraction, potentially leading to an increase in global beef prices and the redistribution of trade volumes. It also notes, however, that the impact of slowing economic conditions and waning consumer confidence around the world may soften global demand.

In its Q4 Global Beef Quarterly, the specialist agribusiness bank said while the reduction in the size of the US cattle herd is “nothing new”, with numbers declining rather than building in recent years, it has, to date, not impacted the amount of domestically produced beef reaching US consumers.

With the bank forecasting the tipping point to be reached in 2023, that is expected to change soon. US beef production should fall by 3%, with annual declines of 2–5% possible into 2026.

“On average, that is the potential loss of 400,000 to 500,000 metric tonnes of beef from the US production system per year during this period,” the report said.

A natural cyclical ‘liquidation’ (reduction) in cow numbers is behind this decline, according to the report’s lead author, Rabobank senior animal protein analyst Angus Gidley-Baird. Compounded by the impacts of recent drought conditions and high feed costs, the US herd peaked in 2019.

Filling the gap

Gidley-Baird said previous periods of decline in US beef production suggest the country’s retailers and restaurants will look to the global market to fill this void, and US consumers will likely outbid the rest of the world to keep their fill of beef.

The question is which beef-exporting nations will fill this gap, he said.

“While neighbours Mexico and Canada — the two largest suppliers of beef to the US — are likely to take up some slack, Canada is going through its own cattle herd liquidation phase and likely limited in what it can supply,” he said.

“Australia and New Zealand, the third and fourth largest US suppliers, are the logical next options. But Australia’s recovery from its own beef cattle liquidation phase is being drawn out with some questions as to whether it will have the cattle available to produce the same volumes it has done in the past.”

New Zealand beef production is also expected to be limited, forecast to decline 4% between 2023–25, while Europe, not a big supplier of beef to the US anyway, is set to continue to record a structural decline in production over that period, according to Gidley-Baird.

“This leaves South America, which has volume, but lacks the trade access needed to fill the sizeable gap in US production,” he said.

“Brazil’s production is forecast to grow over the coming years, but we expect production in Argentina to decline then plateau. In combination, these two major South American exporters will not increase production enough to offset the drop in the US, even if trade arrangements are changed to increase exportable volumes from South America.”

The net result of Rabobank’s report was the expectation that the decline in US beef production would not be met by production growth in major exporting countries.

“And this is even without consideration of any other increases in global beef demand over the same period,” the bank said.

Australia

For Australia, the report said, favourable seasonal conditions continue to support producer demand and, in turn, cattle prices, despite softening at the retail end of the supply chain.

Gidley-Baird said local beef prices were expected “to hold as we approach the end of the year, with a likely dip in the new year as cattle volumes increase and summer pasture growth starts to dry off”.

Labour constraints and tight margins are leading to a reduction in slaughter numbers in the Australian beef market, according to the report. “Volumes dropped below 2021 volumes through September and October as labour continues to be a problem, but, more recently, poor margins have led to some plants scaling back volumes,” it said.

Gidley-Baird said while the bank believed the Australian cattle herd was growing, “it is possibly not doing so at the rates we have seen in the past”.

“We think producers are taking advantage of good feed availability and high cattle prices to trade cattle rather than build breeding numbers,” he said. “As a result, we haven’t seen cattle prices ease and slaughter numbers lift, despite more than two and a half years of good seasonal conditions — particularly in the south-east.”

However, Gidley-Baird said, Rabobank believed cattle numbers would increase through 2023. “The challenge now is that cattle prices will need to drop further than previously to generate viable processor margins given the rising costs and softer consumer markets,” he said.

Image caption: Angus Gidley-Baird.