Beef exports boom but loss of cows, heifers tempers growth

As dairy farmers consider the lower prices they expect to get for their milk this year – based on predictions from numerous agricultural economists – they may be helped out, at least a little, from the beef side of their cattle business. Those dairy cows that “change career” this year may help out the bottom line more than in other years.

During the annual Agricultural Outlook Forum on the University of Wisconsin campus in Madison in January, Dr. Brenda Boetel, chair of the agricultural economics department at UW-River Falls, predicted that 2023 U.S. beef production will be down 5.1 percent largely based on drought conditions in cattle country. In the world of supply and demand, that should generate a boost in prices for farmers selling cattle from their dairy herds.

“Even though steer slaughter was down, the marketplace was able to compensate for it with increased heifer production and cow slaughter, which came about as a result of drought,” she said.

In 2022 there was no a decline in production, she said, but it was due to an unusual reason. Fewer steers were slaughtered in 2021 than in 2021 – steer slaughter was down 1.9 percent from the previous year. But heifer slaughter was up about 5 percent and beef cow slaughter was up almost 11 percent. The fact that cows and heifers are being slaughtered in high numbers reflected the lack of pastures and forage supplies due to drought.

Total slaughter was up 1.7 percent though dressed weights were down slightly. Overall U.S. beef production was up 1.5 percent from 2021. Boetel (and others) predict that the long tail of last year’s drought will continue to affect beef production, especially with those large numbers of cows and heifers going to market, rather than being kept back to produce future beef calves.

The USDA reported that as of December 1, 2022, hay stocks were 9 percent below year-ago levels and at 72 million tons, hay stocks have not been this low since 1954. Beef growers are still being hampered by the last year’s drought, as they face limited forage stocks and higher costs. Most analysts note these conditions suggest a higher-than-normal cow slaughter again this year.

Drought continues in much of the United States. The Drought Monitor in mid-January noted that over 69 percent of the United States is experiencing some level of drought, slightly lower than a year ago. However, about 58 percent of the U.S. cattle herd is located in these drought-stricken areas. According to USDA, that is an 8 percent increase from a year ago.

The total meat supply in the United States was up 0.62 percent last year, with beef up only 0.5 percent. Boetel expects the 2023 overall meat supply to be down 1.12 percent.

“That plays into the longer term picture,” she said. “As we increase demand, are we, in the longer term, going to end up in a meat shortage in the world and in the United States?”

Even accounting for inflation, there is very strong domestic demand for poultry and for pork, she said. The pork market experienced a bit of a dip compared to 2019, but that had more to do with production being down rather than a decrease in demand. She compared various benchmarks to 2019, because that year pre-dates the pandemic and the market anomalies that resulted from all the disruptions.

Domestic beef consumption continues to be strong even as retail beef prices are likely to be stable or slightly higher this year. When consumers have less personal disposable income it will weaken domestic demand, particularly for animal products and particularly for beef, since it is the higher-priced product, she said.

“As prices stay high, consumers may decide to substitute a cheaper meat for beef. Strong demand will be there, but it may depend a little bit on what happens with recession, if we have recession.”

Last year, retail beef prices were up 7 percent, pork prices were up 10.1 percent and poultry prices were up 16.6 percent. (Of all the meat that U.S. consumers eat, poultry accounts for 51 percent, she said.)

Beef exports boom

In the export market in general, Boetel said, all U.S. exports have become less competitive because of higher prices. “The strong U.S. dollar has been making our products more expensive.” For some products, like broilers, there is less differentiation between U.S. products and that from other nations. In the turkey market, there were lower exports because there was less availability of product, she added.

However, beef is a very different story, she said. Beef and veal had a record year for exports. Exports were 5 percent higher than a year earlier, at 3.562 billion pounds.

“Four years ago or so China started taking some of our beef and I didn’t expect that market to grow as quickly as it has,” she said.

China now ranks as the third largest market (up 26 percent) taking 19 percent of U.S. beef exports. “That growth has been huge. Japan and South Korea are still our biggest markets, but it’s still a growth market in China. We do need to be concerned very much about what happens in China and what happens with Covid there.”

Looking at 2023, Boetel predicted we will see beef exports at 3.09 billion pounds (down 13.3 percent) – and the biggest reason for that is the lack of product availability and the decline in production we’re going to see in 2023 relative to 2022.

When there is a “contraction of the beef herd” the market typically sees heifers being placed in feedlots at the rate of 34.4 percent; in 2022 heifers accounted for 39.7 percent of the cattle on feed, because of drought.

Boetel recalled that last year at this outlook forum, she said the beef cow herd would be down about 300,000 head. When the numbers come out on the effect of the drought this year, she said it will be closer to one million head.

A few days after Boetel’s presentation, the USDA came out with its Cattle on Feed report and she had been spot-on in her prediction: drought had cut U.S. beef cow numbers by one million head and overall the cattle herd was down to the lowest numbers seen since 1962.

The drought and record grain prices impacted cattle producers and led to peak beef production. The fact that cows and heifers were going to slaughter meant that the market was consuming future inventory and that there were going to be fewer calves and feeder cattle in the pipeline to fill feedlots.

In the wake of that report, April cattle hit contract highs at $164.13 per hundredweight as reports showed that consumers have not backed away from buying beef and the marketplace is going to be short on production. One question remains – how much beef will the United States import?

Dairy farmers may want to think about breeding even more of their cows to beef sires in light of the shortage of pure beef calves that will be seen for some time.

Feedlot placements

Feedlot placements in the fourth quarter of 2022 were down 5.5 percent over a year earlier and Boetel predicts declining numbers throughout the year. “We were able to keep feedlots full at a national level for the last three years because of the numbers of heifers we had on feed,” she said.  “That isn’t going to be able to be there in 2023; we just don’t have those numbers. We’re going to see fewer cattle on feed, which means less availability of beef at the end.”

Boetel doesn’t see the beef herd building back in 2023. Her reading of the marketplace predicts 2023 beef production down 5.1 percent. Part of the reason for that is that she sees large numbers of heifers remaining in feedlots.

“If we start to see improvement in drought we will keep heifers back (as replacement cows) which means our beef production will be down even more than this,” she said. “So it kind of depends on what happens with the weather.” If larger numbers of heifers remain on farms and ranches as future cows, rather than going to slaughter it will drop slaughter numbers even more, she noted.

“We have the potential to start building the herd; there is the profitability and the margins to start building back our herds but whether the weather agrees to that or not we will need to see. This largely depends on what happens with weather,” she said.

On the other hand, high input costs temper the higher prices that could be gained from raising beef. Boetel predicted domestic demand for beef would be down as retail prices rise slightly. She believes exports will be down 13.3 percent as farm production drops 4.9 percent and prices for live cattle rise variably.

“Sometimes I’m the doom and gloom person but right now I’m saying there’s a lot of potential here for growth and profitability in this market, depending on where some of this goes. Recession and value of the dollar both play into our demand side,” she added.