Weekly Market Update- May 4, 2020- Beef Production and Imports

Beef Production and Imports

On April 28, 2020 President Trump invoked the Defense Protection Act to classify meat plants as essential infrastructure that must remain open.  This act does not mean that slaughter and fabrication will return to pre-COVID 19 levels in the short term as plants have had to slow production due to worker absenteeism as well as greater distancing between employees on the line. For the week ending May 2, slaughter is estimated at 425,000 head, down 8.6% from a week earlier and 36.8% from the same period in 2019. Similar to cattle slaughter, beef production is down an estimated 8.3% from the week ending April 11, 2020 and 22.8% from the same period in 2019.

Meanwhile, total commitment for beef exports totaled 426,673 metric tons, up 7.6% over the same period in 2019 and total fresh and processed beef imports are up just shy of 1% for the first quarter. There has been discussion between the differences in beef produced and packaged for food service compared to retail grocery, and this same principle applies to export beef. Closing off or limiting beef exports does not necessarily mean greater amounts of beef in US retail grocery stores, nor does limiting imports mean greater cattle prices. The reason is because beef exported is not the same beef imported. Even with beef production down, the importance of keep export markets (and import markets) open is vital to the long-term health of the cattle industry.

The US is the only country able to supply large volumes of high-quality finished beef.  This ability is due to the millions of acres of highly productive cropland and large expanses of grasslands, as well as the marketing system developed to finish cattle on grain. The US cattle industry cannot produce, in a cost-effective manner, all the types of beef demanded by the US consumer. In the past weeks, the market has seen the price effect of the switch from food service to greater quantities of retail grocery beef demand on primal beef cuts.  Loin wholesale prices have increased 20% since middle of March, whereas Chuck wholesale prices have increased 55% since that same time period.  The increase is partly due to the use of chuck for ground chuck sold at retail grocery stores.

Ground beef in the US typically is a combination of two different products: 50% lean trimmings from grain fed cattle and 90% lean trimmings from grass fed cattle or cull cows. These two products are blended together to provide lean ground beef options for restaurants and retail grocery stores. Without these lean ground beef options, many consumers would likely turn to other leaner protein products.

Some producers believe that imports should be limited given the current cattle market and the high demand for beef at the grocery store.  Without beef imports however, there would be less 90% trimmings and higher-valued cuts would need to be added to the 50% lean trimmings to produce lean ground beef. Without adequate 90% lean trimmings, the higher-valued beef would need to be ground and added to the 50% trimmings to produce lean ground beef.  Given that this higher-valued beef can be exported for a greater price and then lean beef is imported at a lower price, the overall value for beef is greater and the cattle producer benefits from higher beef exports.

Regardless of the value of the exports to the producer, stopping imports and exports will not necessarily equate to greater quantity at the retail grocery store.  Seasonally, imports increase between February and June, when the number of cull cows and grass-fed beef is lowest. Additionally, the US typically imports a greater quantity of beef than it exports. Limiting trade will not only reduce the availability of beef in the US but lower the price for finished cattle.

 

The Markets

Trade disputes with China are looming after President Trump stated he is considering new tariffs. Corn price is down after another favorable weekend of planting, and progress is nearly 50% of expected acreage. Corn exports are lower than expected levels. Meanwhile gasoline demand is significantly down, equating to lower ethanol demand.

Packing plants are expected to open later this week, although at slower paces due to worker absenteeism and greater social distancing within the plant. Cattle slaughter will likely be down close to 35% while hog slaughter is down close to 40% from year ago levels. Boxed beef prices are higher with choice being up $27.25 and select up $13.98.

Written by: Dr. Brenda Boetel, UW Madison Division of Extension Livestock Economist

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