WEEKLY cattle slaughter levels show a promising increase after months of falling below expectations. Fed beef processors are still treading a fine line between raising their production levels and not jeopardizing the positive margins they have enjoyed for the past five weeks. Any increase in slaughter levels, especially steer and heifer slaughter, will help reduce the larger than year ago front-end supply of cattle that has been hanging over the market for much of this year.
The total harvest last week was expected to be above the 618,000 head that analysts initially forecast. The kill total through Thursday was 493,000 head, which was 8000 head above the four-day level of the prior week. This followed an estimated kill of 620,00 head the week before last. This was the second highest weekly kill this year. The week before saw the fifth highest kill of the year at 616,790 head. The highest kill this year was 632,438 head in the week ended February 3.
Given the large supply of front-end loaded cattle, larger harvest levels are required, says Bob Wilson, HedgersEdge.com. The price spread between Choice and Select beef ($11.30 per cwt last Thursday) confirms burdensome front-end supplies. The differential this year for this time of year is following the normal seasonal pattern. However, the level of the premium for Choice beef is roughly half what it was last year and less than 50% of the three-year average. Maintaining marketings at the accelerated pace seen recently is the best way to reestablish the premiums given for Choice beef, he says.
Cutouts Lose Ground Again
Daily boxed beef cutout values lost a lot of ground again last week, which was reflective of the weak undertone to the market, says Wilson. Seasonally, both beef demand and beef prices are likely to find it a challenge to score any sustained advance in September, he says. The Choice cutout the first four days last week declined by $5.35 per cwt to $299.56 per cwt. The slide came after the weekly national comprehensive boxed beef cutout (cuts, grinds and trim) moved lower the week before last. It averaged $308.10 per cwt, down $4.02 per cwt from the prior week. It thus declined for the fourth week in a row and was down 1.4% from the same week last year. The Choice cut averaged $306.10 per cwt down $3.47 per cwt from the prior week. The price of domestic lean manufacturing beef (90CL) averaged $370.65 per cwt. This was down $3.60 per cwt from the prior but it was still the 12th week in a row that it was above $370 per cwt.
Cash live cattle prices meanwhile looked like being steady with the prior week, although little trade had occurred through Wednesday. The week before last saw the 5-area steer price average $182.11 per cwt live or $290.61 per cwt dressed. These were up $0.93 per cwt and $3.07 per cwt, respectively, from the prior week. But the average price for that week on the Southern Plains was below the average price for the same week in 2023, says Wilson. This was only the second time this year that prices there have been below year ago levels, he says. The only cash trade last Monday through Wednesday was in Iowa, where cattle sold at $182-183 per cwt live. A light trade continued up north Thursday morning while trade remained inactive down south. Carcass weights meanwhile remain well above last year’s levels and set a new overall record in the latest reported week. Steer weights in the week ended September 13 averaged 941 lbs, which was 1 lb off the record of 942 lbs set the week of December 23 last year. Heifer weights averaged 846 lbs, while overall weights averaged 860 lbs, which exceeded the previous record of 855 lbs set the week of October 17, 2015.
BRAZIL EXPORT SURGE IS SURPRISING
WITH U.S. domestic lean beef prices trading at record levels due to local cattle supply challenges, Australian, Brazilian and Uruguayan beef is flowing into North America in much larger volumes. But while greater volumes from Australia were widely anticipated as Australian beef production has ramped up this year, it has been the extent of growth in Brazilian exports in 2024 that has taken some observers by surprise, says Beef Central in a special report.
Australia’s exports to the U.S. for the year to the end of August reached almost 235,000 metric tons, up 96,000 mt or 69% on the same seven-month period last year and the highest number since 2015. August shipments reached 41,000 mt, 59% higher than last year. At the same time, for exporters like Australia, the rising demand out of the U.S. comes at a time when demand from China, the top beef buyer in the world, has slowed due to economic challenges. Australia’s exports to China over the past eight months totaled 121,000 mt, 8% lower than last year. Much of the displacement headed into the U.S., says Beef Central.
Record prices for lean manufacturing beef (90CL) and the strong U.S. dollar have encouraged global beef suppliers to accelerate shipments to the U.S. market, Steiner Consulting wrote in a recent Daily Livestock Report. U.S. imports of fresh, frozen and cooked beef in July were 25% higher than a year ago, while year-to-date imports were up almost 19% compared with a year ago and were 27% higher than the five-year average, wrote Len Steiner.
The reduction in imports from other North American countries has opened the door to more beef coming from Australia, New Zealand and South America, said Steiner. At a time when U.S. cattle numbers have declined, cattle inventories in Australia have expanded, making more supply available for export, said the DLR report. The asynchronous cattle cycle in North America and Oceania explains why this is the highest volume of beef imported from Australia since 2015. It does not appear that imports from Australia will slow any time soon. The current pace of slaughter in Australia and uneven demand from Asian markets suggest that export shipments will continue at the current pace for the remainder of the year, said Steiner.
If the increase in imports from Australia was somewhat expected considering the steady increase in cattle inventories there, the surge in U.S. imports from South America has been far bigger than most expected, said Steiner. Australia no longer faces a significant tariff penalty but U.S. imports from South American suppliers are subject to tariff rate quotas. Argentina and Uruguay operate under a country-specific quota of 20,000 mt per year, while Brazil operates under the Other Country quota, which totals 65,000 mt. The rapid rise in trade this year meant Brazil and other filled the Other Country quota in March, meaning shipments for the remainder of this year have been exposed to an out-of-quota tariff of 26.4% on all beef shipments. This reduces their competitiveness against other exporters like Australia and New Zealand, said Steiner.
However, this has not proved to be a significant impediment to Brazilian shipments, said Steiner. U.S. imports from Brazil through July were 92,000 mt, while Brazilian shipments in July and August were 14,500 mt and 15,000 mt, respectively. Imports from Uruguay, which has its own 20,000 mt quota, were 49,500 mt through July. There is also more beef from Argentina and Paraguay entering the U.S. market. As CBW reported the week before last, the U.S. is now Uruguay’s largest export market by volume, surpassing China. Imported beef shipments from Brazil will likely accelerate at the end of the year as suppliers know the quota available is likely to be filled in the first couple of months of 2025, said Steiner in the DLR.
JBS FORECASTS 2024 EBITDA
JBS SA, the world’s largest protein company, projects that its net revenue for 2024 will total $76.5 billion and that its adjusted EBITDA will range between $6.25 and $6.75 billion. The estimates are based on JBS’s current performance and market conditions, it says, although the company cautions investors that the food sector’s inherent volatility could lead to different actual results.
CONCERNS ARE HIGH ABOUT AG
APPREHENSION over the current state of agriculture was high at the 2024 Ag Outlook Forum hosted by the Agricultural Business Council of Kansas City and Agri-Pulse in Kansas City, Mo., last week With approximately 250 in-person attendees and 100 virtual viewers, all ears were tuned in to hear speakers’ insights into the likelihood of a farm bill in 2024 and what kind of economic environment producers can expect in the coming months, says MEAT+POULTRY. Net farm income is expected to drop nearly 7% to $10.2 billion in 2024 relative to a year ago, Spiro Stefanou, USDA’s Economic Research Service Administrator told the forum.
In his economic overview, USDA chief economist Seth Meyer noted a distinct difference between the fortunes of crop producers versus those of livestock producers. The crop side is experiencing high input costs despite having a record high corn and soybean yield, he said. The livestock side has seen a year-over-year increase in farm income, much of which has been driven by prices But Meyer cautioned that price doesn’t necessarily have long-term benefits. Furthermore, the livestock supply is facing contraction. If we had more beef and beef producers had confidence and didn’t have as much concern about interest rates, we might have more beef to sell, he said. State regulations such as California’s Proposition 12 play into the economic outlook. Meyer pointed out how the proposition, which outlaws gestation crates for sows, has an impact on the hog and pork markets, while California consumers are currently the ones paying for it.
AUSTRALIAN PLANT COSTS INCREASE
OPERATING costs for a typical Australian beef processing facility have risen 25% over the past eight years, with an average animal now costing around A$450 to kill, bone and pack. This is according to a new economic study, as reported by Beef Central. The per animal cost has risen by A$90 from around A$360 per head in the industry’s original, more comprehensive cost-to-operate report published in 2016, exposing Australia’s chronic lack of competitiveness in this area, says Beef Central. There was a big difference noted in cost-to-operate on grain-fed cattle (A$478 per head) than on grass-fed (A$371 per head) in the 2024 economic analysis completed recently by the Australian Meat Processor Corporation.
The latest analysis was based on an average of a wide range of processing activity, from hot boning at one end to much more sophisticated chilled boning at the other where processors do a lot more with the carcass, said the analysis The report stressed that costs will vary for individual processors depending on facilities, processes, location and availability of resources. A hot boning plant for example will have lower cost to operate than a chilled boning plant producing high quality beef. This trend was confirmed by two large multi-site beef processors, who told Beef Central that their own processing costs this year (representing both grain-fed and grass-fed cattle ) are closer to A$500 per head than A$450.
The highest cost increases noted in the latest report occurred in areas like energy (electricity and gas) and fuel, waste disposal and transport, says Beef Central. Labor cost increases were somewhat less impactful, although Australian labor costs remain higher than international competitors. The report found that processing wages and salaries, and workers’ compensation have risen 22.6% since the original report, while retirement benefits have risen 38.4%. Utilities like electricity have risen 30.2% in the past eight years, other fuel prices have risen 28.2%, water and sewerage costs are up 9.8% and waste disposal costs are up 28%. Other costs, including certification/audit costs, have risen 24.2%, packaging is up 21.1pc and transport of finished goods is up 27.4%.
Using grass-fed processing as an example, total labor costs on a per head basis have risen from A$180 to A$223 over eight years, says Beef Central. Utilities costs (energy for cold storage, heating, lighting and machinery) plus water, sewage and waste disposal costs are up from A$20 to almost A$26 per head. This year’s report pointed out that that Australian minimum wages remain higher than all its meat exporting competitors, based on an OECD comparison of minimum hourly wages in real terms. In 2022, the minimum wage in Australia was 3.2% higher than in New Zealand, 46.7% higher than in the U.S. and 82% higher than in Brazil. Since 2017 the U.S. minimum wage has declined in real terms, widening the gap between Australian and U.S. labor costs.
GRASSLAND TAKES 29% OF ALL U.S. LAND
GRASSLAND pasture and rangeland at 659M acres accounted in 2017 for 29% of the U.S. total land area of 2.26 billion acres. The other major uses of land in 2017 were forest-use land at 622M acres (28%), cropland at 390M acres (17%), special uses (primarily parks and wildlife areas) at 318M acres (14%), miscellaneous other uses such as wetlands, tundra and unproductive woodlands at 197M (9%) and urban land at 74M acres (3%). These are findings from the most recent (2017) inventory of U.S. major land uses, drawing on data from six federal departments and various other sources. The findings were compiled by and just published by USDA’s Economic Research Service (ERS).
Grassland pasture and range use increased by 4M acres or 1% between 2012 and 2017, its highest recorded amount since 1945, says ERS. Over this same period, acreage for all grazing land (the sum of grassland pasture and range, cropland used for pasture and grazed forests) increased by 7M acres or just under 1% to 805M acres, continuing a reversal of the downward trend observed from 1945 through 2007. Total cropland includes land used for crops (87% of total cropland), cropland used for pasture, and idled cropland, including acreage removed from production under government programs. Between 2012 and 2017, total cropland decreased by 2M acres or 0.5% to its lowest level (390M) since the data series began in 1945. representing a historic low for cropland acreage. But a substantial portion of the decline between 2002 and 2012 should be viewed as the result of changes in how land at the intersection of cropland and pastureland was classified rather than how the land was used, says ERS.
Forest-use land includes land that serves commercial forest uses, including grazed and ungrazed forest-use land, says ERS. This is opposed to land that has forest cover but is used for other purposes (e.g., forestland in parks, wildlife areas or other special uses). Forest-use land in 2017 included 132M acres of grazed forests. Land in urban areas was estimated to be up 4M acres since 2012. Urban land area increased by a factor of 4.9 from 1945 to 2017, growing at more than twice the rate of the population growth over this period, says ERS.
JBS TEAMS WITH GREENGASUSA
JBS SA teams with GreenGasUSA to turn animal waste into marketable fuel as the world’s largest meat producer seeks to reduce harmful emissions. Under the agreement, GreenGasUSA will initially collect, process and trade biogas, a fuel made of methane, a potent planet warming gas, at JBS’s beef plants in Grand Island, Neb., and in Hyrum, Utah, and at a chicken plant in South Carolina. The projects are expected to be completed in 2025, says JBS. GreenGasUSA has also announced methane-capturing partnerships with chicken producers Wayne-Sanderson Farms (a joint venture between Cargill and Continental Grain) and with Perdue Farms. The company is controlled by IFM Investors Pty Ltd., a fund manager owned by Australian pension funds.
The agreement with South Carolina-based GreenGasUSA is viewed as the first step of a long-term partnership to significantly improve JBS’s ability to capture methane and generate biogas, says Jason Weller, JBS’s chief sustainability officer. While JBS since 2019 has initiated more than 25 projects to eliminate or capture methane emissions from organic waste lagoons, natural gas generation is not a core competency and productive capacity can be increased with a partner with expertise. GreenGasUSA will be upgrading facilities, enhancing generation capacity, improving operational efficiency and covering some of JBS’s largest lagoons that have yet to be completed, he says.
JBS has pledged to slash greenhouse gas emissions to net zero by 2040, although it says that achieving that goal will depend on numerous factors outside its control, including changes in legislation and new technologies. JBS has also committed to eliminate illegal deforestation from its Brazilian supply chain, including the suppliers of the ranchers it buys cattle from, by 2025, it says.