The Law of Chinese Markets

BY JOY REZNICEK SUNDBECK

percent of beginning inventory is our culling rate. Over time it averages under 11 percent. This year we will have a new record at over 13%. We’ve never had a larger cull rate of beef cow herds in our history.” Comparatively, steer slaughter was down in 2022.

The China/Hong Kong import market has eclipsed nearly two times and since 2017 has become the largest beef importer in the world. Ten years ago, China was not a factor in global meat markets. “We must keep in mind that the Chinese do not eat as much beef as we do – only 11 to 12 pounds per capita. The U.S. eats 57 to 58 pounds annually. A small increase in consumption for China is a lot of pounds of beef,” says Peel.

Dr. Peel, one of the leading beef industry economists, spoke at the Mississippi Cattlemen’s Convention. He reviewed the livestock market situation and outlook for the future.

China is only part of the equation. Exports are strong and growing. They set records in 2021 and again in 2022 and have helped sustain U.S. cattle prices. “It’s remarkable that prices have stayed strong given the number of cows we’ve slaughtered the past two years,” says Peel.

“We’ve had a tremendous volume of cull cows move through the markets bringing cow herd stocks down,” says Peel. “Yet, prices, for the most part, have been quite good. That is a very positive story for beef demand.”

Wide-spread drought across much of the country is the main contributor to declining cow herd inventories. “Our current drought situation began in late 2020,” Peel says. “We have not recorded a period of drought worse than now since drought maps were established in 2000. There are some cumulative effects of a drought for one year, but when drought persists into the second and third years, it begins to have some additional impact.”

One of the accrued effects of two or three years of drought is limited hay and forage supplies. Hay stocks on May 1, 2022 were down due to the drought in 2021. Hay production was down again this year. “We are working with the lowest hay supply since the mid-1970s when hay stocks were first recorded. We’ve never had tighter hay supplies,” says Peel. Producers should be aware that a drought in one region is supplemented by hay stocks from another region. “Hay prices are at record levels. There are not many alternatives for feed. This situation will not change until next hay crop year,” says Peel.

Global grain prices have nearly doubled from May 2020 to May 2022 due to strong demand, supply concerns and geopolitical interference. Feedlot steer costs of gain in Kansas at the beginning of 2022 were 82 cents a pound. “We are heading to $1.35 or higher a pound cost of gain,” Peels says. “There is no real relief in sight. Certainly not in the next few months. That’s true for supplemental feed out in the country.”

Feedlot inventories have been at record occupancy levels for much of the year due to drought. For the last few months feedlot numbers have declined and are expected to come down for the foreseeable future. “We’ve pushed the envelope as to how far we could stretch cattle supplies. The last place this shows up is in the feedlots,” Peel says.

United States cattle inventories peaked in 2019 after bottoming nearly a decade ago in 2014. “Our cow herds have been getting smaller, accelerated by the drought, the last few years,” says Peel. “The drought situation means we are slaughter ing cows, and we are slaughtering heifers. Not because it is sustainable. We are eating inventory. You can do that for a while, but you cannot do it indefinitely,” says Peel.

On October 1, the number of heifers on feed, as a percent of all cattle in feedlots, was the highest level in 21 years. Heifer slaughter is up nearly 5% this year on top of a 4% increase last year. “We have pushed heifers through the feedlot and are eating them. It impacts beef production now and will have lots of implications for the future,” says Peel.

Total female slaughter, heifers plus cows, represents 52% of total slaughter in 2022. The last time female slaughter was over 50% of total cattle slaughtered was in 1986. The severe drought a decade ago did not cause female slaughter to get to this level. “We have really taken a hit on the female side of the industry,” says Peel. “The beef cow slaughter as a

Estimations for beef production in 2023 are to be down 5%. Peel says the number could be anywhere from 4.5% and 7%. “That is an extremely sharp drop in beef production. Beef consumption will decline next year and the year after that,” Peel says. “Beef consumption is nothing more than a measure of supply. We will eat less beef next year because we are not going to produce as much beef. You can’t eat it if you don’t produce it.

“My projection for where we settle on beef cow inventory is just about where we were in 2014. It could be a little smaller,” Peel predicts. “The drought of 2011 and 2012 forced cow numbers down. That is what is happening again. When we get the chance, there will be incentives to rebuild cow herds. How do we do that?” Peel asks. “We do it with heifer retention.”

The revenue side of cattle production will be less of a concern in 2023, at least as far as cattle prices go. However, managing and maintaining production and managing the rising cost of production will continue to be major challenges for cattle producers this year.

Around 50% of U.S. operations are experiencing drought. There has been no period of drought worse since drought maps were established in 2000.

High grain prices will continue to be a challenge for producers, especially with poor pasture conditions in many areas of the U.S. How long drought conditions persist will be a key driver of cattle markets. High cattle prices could send signals for producers to expand, but they will need improved pasture conditions to do so.

The U.S. is experiencing the lowest hay inventory since the mid-1970s when hay stocks were first recorded.

Cost increases in supply chains likely stay with us in 2023. Feed, fertilizer and fuel will remain high.

Expect beef production to decline in 2023 and beyond as heifers and cows are retained to rebuild cow herds. Estimations are for beef production in 2023 to be down 4.5% to 7%.

Expect shrink-flation in food retail and food services to continue in the beef protein complex.

Plant-based meat substitutes have throttled down in 2022 as a result of declining consumer interest. Beyond Meat, Inc. (BYND) stock traded at an all-time high of $234 per share in 2019. Today it is trading at around $13 per share. Beyond Meat’s market capitalization has fallen from $1.14 billion to $722.8 million.