KAY’S korner

Dec 30, 2011
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Cattle producers the world over are great survivors. The beef industries in most of the major beef-producing countries have endured everything from BSE to drought to floods in the past decade. These and other calamities forced some producers out of the business. But those who remain are on the brink of one of the brightest five- to 10-year periods in many years.

Why such a bright outlook? The answer is simple.

Global beef demand is outstripping available supplies and will continue to do so for the foreseeable future. Latest data from USDA indicate that global cattle numbers in 2012, at 1.018 billion head, will be up only 0.6 percent from 2011 and that global beef production will remain flat at 56.8 million metric tons.

Conversely, global demand for beef continues to grow, i.e. people are paying more for beef. That’s good news for producers everywhere, but particularly here in the U.S. That’s because our industry produces by far the largest amount of high quality, grain-fed beef of any country. And that beef is rapidly becoming one of the most sought-after food products around the globe.

Solid evidence of people’s willingness to pay more for this comes from top U.S. packers and exporters. JBS SA, the world’s largest beef exporter, reported last year that average export prices from JBS USA (which includes its Australian operations) were up 22.3 percent in its 2011 first quarter on the year earlier quarter. Prices were up 21.9 percent in the second quarter and up 19.3 percent in the third quarter. Tyson Foods, the largest beef packer by sales, does not break out export prices. But its average selling price for beef in its fiscal 2011 (which ended Oct. 1) was up 16.9 percent from fiscal 2010.

The fundamentals will be even stronger in 2012 than in 2011. Key Asian markets such as Japan and South Korea will experience positive gross domestic product growth, helping a further improvement in beef demand. Japan looks set to lift its age limit on U.S. beef from under 21 months to under 30 months. Then there’s China, which is likely to start taking U.S. beef in the second half of the year.

People historically have improved their diets, and begun to include meat in them, as their level of disposable income increases. It is little surprise that the Food and Agriculture Organization (FAO) of the United Na tions recently forecast that global meat consumption will increase 73 percent by 2050, and that dairy consumption will grow 58 percent.

Significantly, FAO acknowledged that a lot of the future demand for livestock production will be satisfied only by large-scale, intensive animal-rearing operations. As it stands, there are no technically or economically viable alternatives to intensive production for providing the bulk of the livestock food supply for growing cities, says FAO. Go tell that to the Luddites who would like agriculture to return to the days of 40 acres and a mule.

That’s way in the future.

What about tomorrow? Ironically, the dilemma for the U.S. is that the national cattle herd continues to shrink just as domestic and global beef demand improves. Moreover, reduced production, more exports and fewer imports mean that per capita beef supplies in the U.S. continue to decline.

The U.S. cattle herd shrank in 2011 for the fifth straight year. USDA has forecast that the Jan. 1, 2012, total will be 91.45 million head, although private forecasts are closer to 91 million head. This means U.S. beef production will likely decline 2.5 percent in 2012. USDA expects imports to

increase by 2 percent to 2.09 billion pounds as tight global beef supplies will continue, it says. USDA has U.S. beef exports in 2012 up only 0.6 percent on 2011, although other estimates have them up 6 percent.

Whatever the number, total available beef supplies in the U.S. will be lower and will raise the question of “where’s the beef?” USDA forecasts supplies in 2012 at 54.1 pounds per person, versus 57.6 pounds in 2011 and 59.6 pounds in 2010. The 2012 supply will be the lowest in at least 61 years.

The implications for producers are clear. Demand will exceed supply both at home and abroad. Yet of the main beef-producing countries, only Brazil and Australia appear to be showing any tangible signs of herd expansion. The Australian Bureau of Agricultural and Resource Economics and Sciences projects the herd Down Under will reach a 34-year high in 2011-12 at 30.2 million head. Brazil’s cattle numbers, according to USDA, are set to increase 3.3 percent in 2012 from 2011. This is why I have been encouraging producers in the U.S. and Canada for more than a year to expand their herds if they can. The future looks more assured than at any period in my 35-plus years of covering the global beef industry.— Steve Kay