A SURGE in daily beef cutout values sharply reduces the red ink that fed beef processors have suffered for the past three weeks. Losses averaged $83.70 per head the week before last and $40.80 per head the week before that, according to HedgersEdge.com. But a big rally in the cutouts reduced the loss to just under $20 per head by last Thursday. The comprehensive boxed beef cutout (cuts, grinds and trim) the week before last averaged $300.09 per cwt, down $1.09 per cwt from the prior week. The Choice cutout averaged $298.48 per cwt, down $1.21 per cwt. But it advanced $7.37 per cwt the first four days of last week to be at $309.95 per cwt Thursday. The Select cutout advanced $3.12 per cwt to be at $290.73 per cwt.
The industry meanwhile is still looking for a seasonal pickup in exports. As CBW reports in its next story, exports in September and early October were smaller than normal, with exports as a percentage of total weekly volumes in the comprehensive boxed beef report sometimes in single digits. The industry is approaching a period when some increase in weekly exports should be realized, says Andrew Gottschalk, HedgersEdge.com. While time has not run out for exports to increase, the lifeline has been shortened. If a significant increase in this seasonal demand fails to materialize, beef cutout values may continue to struggle, he says.
Exports Might Limit Kill Levels
A lack of increase in exports could be a limiting factor to weekly harvest levels, says Gottschalk. The level last week might have been challenged to exceed 600,000 head, he says. The total through last Thursday was down 17,000 head on the first four days of the prior week. This was after an estimated slaughter total of 611,000 head the week before last, which put the total year-to-date 950,000 head below last year at the same time. Steer and heifer slaughter that week was an estimated 496,000 head. The three-day total last week was an estimated 289,000 head, reflecting an estimated total on Monday of only 88,000 head.
Various levels of dry conditions prevail in much of cattle country, which may increase the weekly cow harvest and receipts of feeder cattle and calves, says Gottschalk. Cow slaughter for the year to September 21 was down a weekly average of 19,240 head versus last year. That said, the reduction in the feeder cattle and calf supply outside feedyards, coupled with the decline in the calf crop, will continue to limit the available offerings for feedlot placements. the supply side for feeder cattle and calves remains positive, he says.
The cash live cattle trade last week was characteristically slow to develop. A few loads of cattle sold in Iowa-Minnesota Monday and Tuesday at $187 per cwt live. This was after the 5-area steer price the week before averaged $186.89 per cwt live, which was up $0.74 per cwt from the prior week. The dressed price averaged $296.00 per cwt, up $2.47 per cwt. Trade improved up north on Wednesday, with prices in both Iowa and Nebraska at $187.per cwt live or $294-296 per cwt dressed. Trade became more active Thursday, with prices up north similar to the day before but with a top reported in Iowa at $192 per cwt live. Prices down south were $186-187 per cwt live.
Steer carcass weights meanwhile in the latest reporting week fell 7 lbs from their record of 948 lbs set the prior week. Weights in the week ended September 28 averaged 941 lbs. Heifer weights averaged 857 lbs, up 5 lbs from the prior week. This set a new record, with the previous record at 855 lbs set the last week of December 2021. Overall weights averaged 860 lbs, down 2 lbs from the prior week.
BEEF EXPORTS LOSE MOMENTUM
U.S. beef exports lost some momentum in August, notably to key Asian markets, but they increased year-on-year to Mexico. Exports totaled 102,682 metric tons (mt), down 6% from a year ago and the lowest since January, says the U.S Meat Export Federation (USMEF). Export value fell 4% to $845.9M. Through the first eight months of the year, beef exports were 3% below last year at 856,834 mt but were 4% higher in value at just under $7 billion. Exports in September and early October were smaller than normal, with exports as a percentage of total weekly volumes in the comprehensive boxed beef cutout report sometimes being in single digits. Their percentage the week before last was only 5.6%.
Beef demand in the U.S.’s major Asian markets seemed to lose a bit of momentum in August but exports held up well to Mexico, Taiwan and the Middle East, says USMEF President and CEO Dan Halstrom. The headwinds in Asia remain formidable but USMEF is encouraged by the region’s ongoing tourism rebound. The late September removal of Colombia’s restrictions on U.S. beef is also a positive development. While this came too late to impact the August results, it will help bolster fourth quarter demand in Latin America, he says.
Fueled by another outstanding performance from Mexico, August exports of U.S. pork increased year-over-year, says USMEF. Exports totaled 238,989 mt, up 6% from a year ago but the second lowest of 2024. Export value increased 8% to $702.9M. For January through August, pork exports were just under 2M mt, up 4% from a year ago, while valued climbed 7% to $5.68 billion. Pork export value was on a record pace through August, and USMEF projects that both export volume and value will reach record highs in 2024, it says.
Mexico’s demand for U.S. beef remained robust in August, with exports increasing 2% from a year ago in both volume (19,037 mt) and value ($113.2M). For January through August, shipments to Mexico increased 13% to 153,591 mt, while value climbed 16% to $898.5M. This included a strong increase in beef variety meat exports, which were up 15% to 81,816 mt, valued at $221.4M (up 9%). Mexico is the largest volume destination for U.S. beef variety meat. August beef export volume to Japan slipped modestly compared to last year, falling 2% to 20,585 mt. Export value declined more significantly, down 9% to $158.4M. For January through August, export volume to Japan was steady with last year at 169,636 mt, while export value was 5% higher at $1.31 billion, says USMEF.
Exports To Korea Were Down 13%
Beef exports to South Korea also trended lower in August, down 13% from a year ago in volume (17,128 mt, the lowest since 2020) and down 5% in value ($163.1M), says USMEF. Through August, exports to Korea managed a slight increase in value ($1.43 billion, up 1%) despite a 12% decline in volume (151,065 mt). August exports to China/Hong Kong declined 10% from a year ago to 17,131 mt, while export value fell 8% to $155.3M. January-August exports to the region were down 11% from a year ago in volume (139,382 mt) and down 6% in value ($1.29 billion). The Chinese government in recent weeks unveiled long-awaited measures aimed at stimulating the nation’s sluggish economy, says USMEF. Some aspects of this package could provide a boost to China’s foodservice sector, which is still struggling to recover from the COVID era, it says.
Beef exports to the Middle East have rebounded impressively in 2024, says USMEF. They have been led by larger beef variety meat shipments to Egypt, record beef muscle cut shipments to Qatar and strengthening demand for muscle cuts in the United Arab Emirates, Kuwait and Bahrain. August exports increased 40% from a year ago to 4053 mt, valued at $17.6M (up 18%). This pushed the January-August results 30% above last year in volume (36,501 mt) and 27% higher in value ($164.2M).
Beef export value equated to $391.19 per head of fed slaughter in August, down 1% from a year ago. The January-August average was $414.88 per head, up 5%. Exports accounted for 13% of total August beef production and 10.7% for muscle cuts only, each down about half a percentage point from a year ago. The January-August ratios were 13.9% (versus 14.3%) of total production and 11.6% (12%) for muscle cuts.
MCDONALD’S SUES BIG FOUR PACKERS
HAMBURGER giant McDonald’s becomes the latest U.S. beef buyer to sue the Big Four packers for allegedly conspiring to fix the price of beef for nearly a decade. The chain filed a complaint against Cargill, JBS SA, National Beef Packing, Tyson Foods and their affiliates. In the complaint, filed on October 4 with the US District Court for the Eastern District of New York, McDonald’s said it had purchased beef from one or more of the meat processors from January 1, 2015, until the present day. During that period, McDonald’s claims the companies colluded “to reduce supplies of beef in tandem, thereby raising and fixing beef prices at levels higher than prices that would have prevailed had the beef market been competitive.”
McDonald’s claims to have suffered antitrust injury by paying illegally-inflated prices for beef as a result of the processors’ alleged violation of Section One of the Sherman Act, it said. The chain is demanding a trial by jury. In its case, McDonald’s builds on arguments presented against the companies in previous suits and ongoing investigations by the Department of Justice (DOJ) related to anticompetitive practices. The DOJ in 2020 issued subpoenas to the four packers to investigate anticompetitive activity. That investigation is ongoing and no timeline has been given as to when it might end.
Four earlier complaints were filed against the companies with the U.S. District Court of the Eastern District of New York on December 29 last year. In court documents filed by Quality Supply Chain Co-Op, Gordon Food Service Inc. and Glazier Foods Co., Target Corp. and BJ’s Wholesale Club Inc., the plaintiffs allege that the processors conspired to sell beef at prices artificially higher than the market demanded. The beef buyers claim the price-fixing conspiracy dates back as early as January 1, 2015.The plaintiffs pointed to conversations between a former JBS Swift Beef employee and James Hooker, head of fabrication at a Swift plant, as evidence of collusion and a slaughter reduction agreement between the meat packers. Similar allegations surrounding the Big Four include a recent lawsuit filed by Compass Group and one filed by a group of small food distributors in October 2023.
McDonald’s Cites Change in Price Behavior
Based on unsealed information and court filings, McDonald’s referred to the conversation noted above. According to the McDonald’s complaint, the beef market began to experience a change in price behavior in 2015, a shift that the company accredits to the alleged conspiracy between processors. McDonald’s added that the defendants control around 81-85% of the domestic market-ready fed cattle processed during the specified conspiracy period. The next largest meatpacker outside of those named in the suit had only 2-3% market share. CBW data indicates that the Big Four in 2022 had an 80% share of fed steer and heifer slaughter. The next large packer, Greater Omaha Packing, had a 2.5% share,
Several of CBW’s contacts who have deep knowledge of the beef processing industry last week expressed their bewilderment at why McDonald’s would sue the packers and on what grounds. They are unaware that McDonald’s buys any fed beef from the Big Four. McDonald’s might buy beef patties directly from Cargill and JBS. That is because Cargill is the largest manufacturer of ground beef in the industry and in 2022 harvested 708,000 non-fed cattle. JBS in 2022 harvested 1.34M non-fed cattle and produces ground beef and beef patties.
McDonald’s relies on three major grinders for the vast majority of its beef supplies, say observers. They include OSI Group, Keystone Foods and Golden State Foods. McDonald’s does not own any of these companies. Tyson Foods owns Keystone Foods, which it acquired in 2019 for $2.16 billion from Brazil’s Marfrig Global Foods. Keystone founder Herb Lotman in the 1960s developed the Individual Quick Freezing process. He introduced the IQF hamburger patty to McDonald’s, which still uses it today. Golden State Foods (GSF) is a U.S. wholly management-owned and -run business-to-business foodservice company that primarily serves McDonald’s. Through a joint venture with Taylor Fresh Foods, GSF is one of the biggest and longest-serving suppliers to McDonald’s and is its third largest beef supplier in the U.S. market, says Wikipedia. OSI Group, based in Aurora, Ill., operates its numerous U.S. plants as OSI Industries.
FOOD SPENDING IN 2023 WAS RECORD
FOOD spending in 2023 in the U.S. was record high on a per capita basis. Food spending by U.S. consumers, businesses and government entities reached a high of $2.57 trillion, says USDA’s Economic Research Service (ERS) in a new report. This translated to $7672 in spending per person, a 7.5% increase from the previous year even as price increases eased up. This rise primarily was fueled by a 12.0% increase in spending on food away from home (FAFH), which grew to $4485 per capita in 2023 from $4004 in 2022. At the same time, food at home (FAH) spending rose 1.8% to $3187 per capita from $3130. The difference between the FAFH and FAH spending growth rates reflects a shift in consumer behavior, as more individuals opted to buy food from restaurants or other eating-out establishments rather than prepare food at home, says ERS.
ERS’s Food Expenditure Series (FES) offers a comprehensive measure of the total value of all food purchases in the U.S., it says The series tracks spending on food intended to be prepared at home, such as groceries, and food prepared away from home, such as at restaurants. The series was expanded in February 2023 to include monthly data by outlet type. In May 2023, ERS introduced state-level estimates into the series. The monthly and state-level FES estimates are for sales only and do not include food that is furnished (such as at hospitals), donated, grown at home, or served at educational institutions, says ERS.
FAH and FAFH spending shares continued to diverge in 2023, says ERS. The post-COVID-19 pandemic shift in consumer behavior toward eating out resulted in the highest share of food spending dedicated to food away from home since the data series began in the 1930s. In 2023, nominal (not adjusted for inflation) spending at FAFH establishments accounted for 58.5% of total food spending. The remaining 41.5% occurred at FAH outlets. The share of food spending is not proportionate to the amount of food purchased because FAFH generally is priced higher than food bought for home preparation. FAFH establishments must pay labor costs for workers to prepare and serve food, says ERS.
Consumers spent more disposable income on food as dining out spending rose, says ERS. In 2023, U.S. consumers spent an average of 11.2% of their disposable personal income on food, the same percentage as in 2022. Disposable personal income is the amount of money consumers have left to spend or save after paying taxes. Disposable incomes rose 8.1% in 2023. Although the share of disposable income spent on food remained the same as in 2022, the share spent on food at home decreased to 5.3% from 5.6% in 2022, while the share spent on food away from home grew to 5.9% from 5.6% in 2022. This shift indicates that consumers’ preferences for dining out and buying prepared meals grew as disposable personal income rose in 2023.
Total food prices increased 5.8% in 2023 and are predicted to increase 2.2% percent in 2024, according to the ERS Food Price Outlook as of September 2024. These increases are more moderate compared with food price inflation in 2022, which was more than three times the previous 20-year average. Because food is essential to living, overall food spending by consumers expectedly rises as food prices increase. However, households may react and adapt to higher prices differently, which may affect the magnitude of food spending changes. Consumers might buy less food overall, shift to lower cost alternatives or opt to buy fewer discretionary items, says ERS.
NCBA FIGHTS FOR TAX RELIEF
THE National Cattlemen’s Beef Assn (NCBA) continues its years-long fight to gain tax relief for cattle producers. It releases a report analyzing data collected in a nationwide tax survey of producers. With the 2017 Tax Cuts and Jobs Act set to expire at the end of 2025, NCBA collected this survey data to better understand how key tax provisions such as death tax relief and business deductions impact family-owned cattle operations, it says.