“Population growth, along with improving middle-class incomes, are the global drivers behind the opportunity for increased beef exports,” notes Rabobank Research Global Senior Data Analyst Sterling Liddell. “Conversely, beef imports into the U.S. face headwinds as an increased number of head available for slaughter combines with relatively persistent carcass weights to equal, or exceed, domestic demand levels.”
That’s one take-away from a recently-released Rabobank report titled Expanding Beef Production Increases the Need for Exports. The report looks at new opportunities that can be explored and risks that must be monitored over the next five years.
With production of all species expanding and domestic consumption at, or very near a peak, the only way for animal protein industries to advance is with growth in exports, the report says. While exports have been a major factor in pork and poultry markets, U.S. beef exports on a carcass weight basis have never exceeded 10% of production.
According to the report, cowherd growth the past several years will result in an 8% to 10% spike in beef production over 2016 levels by 2021-22. “The renewed growth in beef production is driving things to a breaking point, where the U.S. will need to exceed the 10% production export barrier,” the report stresses. That may happen in 2017, as beef exports are on track to hit 11.4% of production.
Part of the increase in exports is due to higher beef quality. “While the trend of increasing quality is difficult to quantify, the combination of genetic improvement, formula pricing that includes premium price structures, and additional days of feeding due to lower grain prices will continue to drive U.S. beef quality higher,” notes Don Close, Rabobank senior animal protein analyst and co-author of the report. “The premiums in the U.S. are expected to increase relative to Choice, branded, and Select classifications.”
Here’s a summary of the report’s findings:
- The key change factors for the beef industry over the next five years are the dynamics of rebuilding the herd, growth of exports relative to production and total domestic consumption.
- The beef cowherd is expected to be in expansion, growing another 1.6% to 2.2% over the next two to three years.
- Further development of spreads between commodity and ultra-high-quality products will provide avenues for U.S. beef to the market and allow for an increase in commodity beef imports. Beginning in 2017, the U.S. has a good probability of becoming a net beef exporter.
- U.S. consumption per capita is projected to grow, with a continued emphasis on quality.
- In order to balance demand with supply, U.S. exports will need to grow above the historical 10%, to as high as 13% of U.S. beef production.
- Demand for slaughter capacity indicates that the balance of market power will remain with beef packers through 2021-22.