ONE of the biggest stock market selloffs in years last Monday added pressure to the cash live cattle and wholesale beef markets last week. Analysts on Tuesday predicted that cattle prices were expected to remain on the defensive, and so it proved to be. This came after prices the week before last edged up from the prior week. USDA’s 5-area steer price averaged $194.45 per cwt live or $309.60 per cwt dressed. These were up $0.32 per cwt and $1.49 per cwt, respectively, from the week before. The cash trade was slow to develop last week. But prices up north Tuesday were lower than the week before at $193 per cwt live or $304-308 per cwt dressed. These established the tops for the week.
Consumer spending on back-to-school items and the inflationary squeeze on consumers’ income, especially in the lower half of wage earners, is likely to slow beef demand the rest of this month, says Andrew Gottschalk, HedgersEdge.com. Consumer concerns over the increased possibility of a slowing economy or even a recession will also keep them on the defensive. Additional weakness in the stock market may further erode consumer confidence, he says. The tug of war remains in what consumers can afford to purchase as opposed to their preference to purchase, the latter of which is beef in most situations. Retail meat sales were positive for the week before last and weekend, which was a payday week. Chicken led the sales parade but beef showed positive gains. Competition for the consumers’ dollar will intensify during the balance of this month, he says.
Nebraska Has Highest Live Prices
Nebraska and to a lesser extent Iowa-Minnesota continue to report higher live cattle prices than those down south. Trade Wednesday was active up north at $193-194 per cwt live in Nebraska and at $190-193.50 per cwt in Iowa. Both reported dressed sales at $305-306 per cwt. The only trade down south was in Kansas at $190-192 per cwt live. Thursday saw a lighter trade up north at $189-193 per cwt live or $302-306 per cwt dressed. Texas reported its first sales of the week at $186 per cwt live.
Carcass weights meanwhile surged in the latest reporting week and remain well above last year’s levels. Steer weights in the week ended July 27 averaged 921 lbs, up 6 lbs from the prior week and up 26 lbs from the same week last year. Heifer weights averaged 835 lbs, flat with the week before and up 23 lbs from last year. Overall weights averaged 846 lbs, up 7 lbs and up 30 lbs, respectively, from last year. This was the equivalent of adding 22,250 head to that week’s slaughter total of 605,176 head, says HedgersEdge.com. The weights, which are record high for this time of year, continue to show that cattle feeders are not current in their marketings. Another measurement is that quality grading remains higher than this time last year. Cattle in the week ended July 27 graded 9.80% Prime and 72.63% Choice for a total of 82.43%. They graded a total of 80.0% (7.63% Prime and 72.37% Choice) in the same week last year.
Boxed beef cutout values meanwhile declined slightly the week before last and on the spot market last week. The comprehensive cutout (cuts, grinds and trim) averaged $314.40 per cwt, down $0.97 per cwt from the prior week. But it was up 4.4% from the same week last year. The Choice cutout averaged $314.77 per cwt, down $0.90 per cwt. Spot market sales represented 27.9% of the total volume of 6641 loads. Formula sales represented 55.4%, forward sales 16.7% and export sales 10.0%. Daily cutout values surged last Monday but then fell back. The Choice cutout declined $1.65 per cwt in four days. The softer beef prices came despite weekly slaughter levels remaining below 600,000 head due to negative packer margins.
CONSUMERS OPT FOR GROUND BEEF
SOME consumers are opting for ground beef over pricier steak cuts, says Scott Brown of the University of Missouri. Examining prices for the first three weeks of July dating back to 2004 shows that this year, the round primal posted a sharp increase in value relative to the value of the entire boxed beef cutout (up 15.7% versus 2023 and 5.6% above the 2015-19 average). Chuck values are also relatively higher, while those for the loin and the rib have decreased. Round values particularly thrive when leaner trimmings are sought after. Historically during the first three weeks of July, the round primal showed strength versus the entire cutout in 2008 and 2011, years when U.S. GDP growth was negative and beef demand was weak. But in 2015, despite high beef prices, the relatively higher round primal values were more of a supply story, as cattle herd rebuilding reduced cow slaughter and limited trimmings availability. Demand for higher-value beef cuts may be weakening a bit. But it is also true that cow slaughter is down substantially, leaving tighter trimmings supplies even with a jump in beef imports. If supply is the primary driver, expect further upward pressure on cattle and beef prices as herd rebuilding tightens beef availability, he says.
HERD REBUILDING WILL START SLOWLY
THE U.S. beef cattle industry is smaller than needed and signals for rebuilding will continue in the coming months. But herd rebuilding is likely to be slow to start and proceed quite slowly initially. So says Oklahoma State University’s Derrell Peel in his latest analysis of the prospects for herd expansion. Coming into 2024, the beef cow herd was at a 63-year low, the smallest beef cow inventory since 1961, he says. This has pushed cattle prices to record levels through 2023 and 2024. Yet there are no indications that any beef herd rebuilding is underway. The question of rebuilding the beef cow inventory is fundamental for cattle markets in the next few years, he says.
A review of historical herd expansions is instructive, says Peel. From 1990 to 1996, the beef cow herd increased by 2.864M head. From 2014-2014, the herd increased less, by 2.734M head, in one less year but faster. The herd increased by 1.2M in just two years from 2014-2016. One of the keys to herd expansion is heifer retention, he says. Beef replacement inventories increased three of four years prior to the beginning of herd expansion in 1991 and for three years prior to herd expansion in 2015. Both expansions included one year of very large heifer retention (Year 3 in 1993 and Year 2 in 2015), with smaller increases before and after, he says.
History provides some insight into what to expect in the next few years, says Peel. First is the fact that the industry does not yet have a zero year (low inventory) from which herd rebuilding can begin. Beef cow slaughter thus far in 2024 is sharply lower, down nearly 16% year-over-year. But this level of beef cow slaughter, combined with the low beef replacement heifer inventory in 2024, implies that the beef cow herd continues to liquidate by another 0.5-1.0% in 2024. Beef cow slaughter would have to drop by roughly 22% year-over-year to avoid additional liquidation this year. The current rate of beef cow slaughter indicates a herd culling rate in excess of 10% this year. The culling rate is expected to drop below 10% during herd expansion. Thus 2025 is the earliest zero year for the next expansion to begin. But there is no certainty that additional liquidation will not occur in 2025, he says.
Liquidation of beef replacement heifer inventories in recent years means there is no pipeline or momentum for herd expansion compared to previous expansions, says Peel. Moreover, the level of heifer slaughter and heifers in feedlots in 2024 suggests that the replacement heifer inventory in 2025 is likely to show modest growth at best. Forecasts show a 2.0% year-over-year increase in beef replacement heifers in 2025. At that level, the beef cow herd is limited to stable numbers or a very minimal increase in 2025, he says. Beyond 2025, heifer retention could increase more and accelerate herd expansion beginning in 2026. But current conditions do not suggest a high likelihood of sharply accelerating heifer retention anytime soon. The threat of continuing/redeveloping drought is one factor limiting the beginning of herd expansion at the current time. Should developing drought conditions become a reality in the coming months with the return of La Niña, additional herd liquidation is likely. Any herd rebuilding could be pushed off further into the future, he says.
TYSON’S BEEF LOSSES CONTINUE
TYSON Foods’ beef segment suffers its third straight quarterly operating loss. It reported a loss of $69M in the quarter ended June 29, versus income of $66M a year earlier. Tyson attributed the loss to price spread compression between live cattle costs and wholesale beef prices, which as expected was driven by continued tight cattle supplies. Meaningful heifer retention remains elusive, it told analysts last Monday. Tyson Beef in the first nine months of fiscal 2024 had an operating loss of $310M, versus income of $232M in fiscal 2023. Tyson now anticipates an adjusted operating loss for beef between $400M and $300M in fiscal 2024. But the beef loss in the quarter was more than offset by a huge rebound in Tyson’s chicken profits. This allowed its overall results to be above analysts’ forecasts for the quarter.
While pasture conditions have improved this year, meaningful herd rebuilding has not emerged, Tyson president and CEO Donnie King told analysts. Tyson continues to be laser-focused on the things it can control, such as labor utilization, yield and mix management to meet consumer demand and customer needs as it manages through the challenges of the cattle cycle, he said. Beef sales in the quarter rose to $5.241 billion from $4.956 billion the year before. Revenue was up 5.8% year over year in the quarter primarily due to the volume impact of higher average carcass weights, with pricing increasing 1.4%, said Curt Calaway, interim CFO. Sales volume was up 4.4% on a year earlier. For nine months, sales totaled $15.218 billion versus $14.296 billion in 2023. Volume was up 0.9% while average prices were up 5.5%. Tyson in a securities filing said its beef segment experienced a limited supply of market-ready cattle in the third quarter and increased cattle costs.
Tyson’s pork segment reported net sales of $1.462 billion, versus $1.324 billion in 2023, because of 12.6% higher prices and a 1.2% increase in volume sold. The segment had an operating loss of $62M, down from a $74M loss a year ago. After a one-time $45M legal contingency adjustment, the segment posted $22M in operating income. Tyson said it expects adjusted operating income of $100M to $200M in fiscal 2024 as U.S. hog production is expected to increase 3% year-over-year.
Tyson Benefits From Improvements
The operational improvements that Tyson has been driving are enabling it to benefit from the market tailwinds, King told analysts. All of its businesses are more agile, collaborative and disciplined than they have been in some time. Tyson’s overall sales in the quarter totaled $13.353 billion, versus $13.140 billion in 2023. The increase was driven by increased sales in its beef, pork and prepared foods segments, partially offset by decreased sales in its chicken segment. Tyson had operating income of $341M, versus an operating loss of $350M in 2023. This was primarily driven by higher operating income in its chicken segment and international/other, partially offset by lower operating income in its beef segment, it said.
The biggest key to Tyson’s turnaround was its chicken segment. It reported chicken sales of $4.076 billion in the quarter, with volumes down 0.4% and prices down 3.7%. Operating income totaled $244M, a huge improvement over the $314M operating loss reported a year ago. Its improved profitability was helped by lower grain costs, better hatch rates and live chicken mortality results, and improved consumer demand. Also, more production restraint by the poultry industry has kept chicken supplies more in line with demand compared to the excess supply on the market a year ago, it said. Tyson raised its forecast for 2024 adjusted operating income for chicken to range between $850M to $950.
Tyson’s prepared foods segment reported revenue of $2.43 billion, up 2% on volume, with prices flat compared to a year ago. Tyson said foodservice demand is improving amid wider promotional pricing from quick-service chains. Operating income totaled $203M, down from $206M a year ago. It anticipates the segment to report adjusted operating income between $850M and $950M for fiscal 2024.Tyson’s international business is also improving. The segment’s revenue in the quarter totaled $582M. Volumes were up 6.5% but sales prices were down 14.6%. Operating income improved to $25M, reversing a $234M loss a year ago. Tyson says it anticipates total company adjusted operating income of $1.6 billion to $1.8 billion for fiscal 2024.
AUSTRALIA SETS EXPORT RECORD
AUSTRALIA’S July beef export volume hit an all-time monthly record. Yet it happened while cattle slaughter numbers are around 30,000 head per week less than when the previous record was set back in the 2015 drought period, says Beef Central’s John Condon. Shipments to all offshore markets last month totaled 129,998 metric tons (mt), up 22% or 24,000 mt on June and 34% higher than July last year. The new record is around 5% higher than the previous monthly record set in March 2015 when 123,464 mt was shipped. Almost 75% of that previous record was in frozen form, signaling a high rate of cow slaughter at the time, says Condon.
While there was some extremely large export activity recorded during the 1974-78 beef slump period, individual monthly records do not go back that far, says Condon. The current monthly dataset extends back to 1994. For the current calendar year to date, Australian export beef shipments are now at 731,408 mt, about 27% higher than the same seven months last year. The seven-month year-to-date record was set in 2015 when January-July exports reached 768,253 mt. This indicates how recent the latest trade surge has been, he says. During the 2015 drought, slaughter and export volumes remained consistently high right throughout the first half of the year. While this year’s June monthly volumes were reasonably strong at 106,000 mt, there was no clear signal that tonnage would explode the way it did during July. Another all-time record was set for grain-fed beef exports last month. The total of 36,976 mt easily surpassed the previous grain-fed high set a month earlier. This clearly reflects the gradual encroachment of grain-fed finishing systems in Australian beef production over the past ten years, says Condon.
With the exception of Japan, every significant Australian beef export market was sharply higher in volume in July compared with the previous month and the same month last year, says Condon. The U.S. continues to shine as the standout export customer in volume terms. It took in 38,540 mt in July, up 34% on the June volume and up 61% on July last year. The trend clearly reflects the point that when the U.S. needs beef, it has the ability and determination to bid imported product away from Australia’s other export customers. Calendar year-to-date, the U.S. has now taken almost 194,000 mt of Aussie beef, up 72% on the same seven months last year, he says.
While these numbers are impressive, history shows the all-time peak in Australia’s monthly exports to the U.S. came in September 2014, says Condon. That year saw drought in Australia that combined with a beef shortage in the U.S. Australia exported an incredible 47,238 mt of beef to the U.S. in just 30 days. The previous time when monthly exports were as high as last month was September 2015. This was well before the dawn of the Chinese import market, meaning there were less competitors in play for Australian product, he says.
GLOBAL MARKET WILL SEE BIG GROWTH
THE global beef market is poised for substantial growth, transitioning from a valuation of $500.18 billion in 2023 to an anticipated $720.58 billion by 2032. So says the Research and Markets Group, based in Dublin, Ireland. The group forecasts this market expansion to occur at a compound annual growth rate of 4.14% from 2024 to 2032. The upsurge in the market can be attributed to changing global food preferences, increased demand for high-protein food sources and advancement in meat quality and convenience of preparation, it says. The beef industry is witnessing a surge in demand on multiple fronts. The increasing global population coupled with rising income levels, particularly in emerging economies, has amplified consumer spending on protein-rich diets such as beef. The beef market continues to benefit from these demographic and economic shifts, pocketing substantial gains both at retail outlets and within foodservice sectors. Urbanization is also contributing to market growth, altering dietary preferences and fostering a preference for convenient, nutrient-dense foods. As urban areas expand, so does the inclination towards readily available and protein-packed food choices, reinforcing beef’s status in the global marketplace. The global trade is reinforcing the sector’s prominence, creating lucrative opportunities for both exporting and importing countries, says the group.