In order to maintain the current industry infrastructure—packing and feeding capacity, allied service providers, etc.—the nation’s beef cowherd likely needs to be at or above 31 million cows or so over the long haul, according to Sterling Liddell, senior analyst of data analytics for RaboBank’s RaboResearch Food and Agribusiness. There were 31.2 million beef cows at the beginning of this year, according to USDA’s Cattle report.
However, domestic consumer demand relative to the production from that many cows suggests a lower price than necessary for cow-calf producers to maintain that many cows. Sustaining prices at a level where cow-calf producers have incentive to maintain that size herd requires more demand.
“In the U.S., animal agriculture sectors are fully mature industries. Therefore, domestic consumption of animal proteins has reached, or is close to reaching, a saturation point. Total consumption of animal protein is not expected to grow much beyond the peak established in 2008,” say Liddell and Don Close, senior analyst for animal proteins at RaboResearch. They authored that organization’s recent U.S. long-term beef cattle outlook: Expanding Beef Production Increases the Need for Exports.
According to the RaboBank long-term outlook (projections through 2025), the nation’s beef cowherd will grow by another 1.6% to 2.2% by 2018 or 2019. But, beef production will likely increase until 2021 or 2022 as cyclical liquidation takes hold, growing to the highest levels since 2003. The good news is that RaboBank projections estimate a 75% probability that the nation’s cowherd remains above 30 million head through the liquidation phase.
“The renewed growth in beef production is driving things to a breaking point,” Close says. “In order for the beef market to remain in equilibrium, the U.S. will have to increase exports to be consistently above 10% of annual production, more than 3.1 billion pounds each year.” And that accounts for domestic population growth.
By equilibrium, Liddell explains, “We’re looking at how the market will balance price, production and demand going forward without a market collapse.”
“We need to be able to increase export demand,” Close emphasizes. “On a carcass weight basis, the U.S. has never exceeded 10% of annualized beef production as exports (RaboBank calculation). We see us breaking through that threshold and becoming a net beef exporter of beef.”
So far this year, Close says U.S. beef exports are 10.7% of production and on track to be 11.4% for the year.
“Exports are where we have to look if we want to continue to grow and be profitable as an industry,” Liddell says. “If we don’t grow exports, it means less opportunity for fewer producers.”