Research from the bank’s knowledge exchange division highlighted that the beef cattle herd is expected to increase over the next two years, with beef production predicted to keep pace with this demand and increase another 3-5%.
“The beef herd expansion we’ve seen from 2014 to 2017 has been the most aggressive three-year start to any expansion record,” commented Trevor Amen, animal protein economist at CoBank.
“Recent slaughter numbers and the cattle on feed mix indicate the expansion rate is slowing, but barring any significant export market disruptions or weather events, expansion will continue through the end of the decade.”
Record profit levels
Citing research from the United States Department of Agriculture, Amen said the 2017 calf crop was estimated to top 36 million. This represented a 2.9% increase from 2016 and an 8.3% rise compared to the calf crop in 2014.
“Profitability for cow-calf producers was at record levels in 2014 and 2015,” Amen explained. “Historically, average profitability at the cow-calf level has to dip below break-even to trigger a transition from herd expansion to contraction.”
Amen added that the demand for beef had so far exceeded expectations for 2017, while price and favourable margins for feeders and packers had helped to boost overall industry profitability. Furthermore, exports were on track to increase 7-9% in 2017 and 5-7% in 2018.
Slaughter on a Saturday
“Export demand has been strong,” he commented. “Momentum has been building since July 2016 and forecasts continue to adjust upward for the remainder of the year. Combined with decreased imports, we’re experiencing a more favourable net trade balance and keeping domestic per capita supplies in check while supporting price levels.”
While supply and demand are both expected to increase, moving forward, slaughter capacities are in a good position to meet these demands. Since last year, Saturday slaughter hours have been steadily increasing. Despite the increase, Amen said it was unlikely that additional space would need to be opened.
“Plants will add additional slaughter hours to manage the extra supply through 2019,” he commented. “The biggest potential concerns, as the industry drifts closer to maximum packing capacity, are labour availability and temporary plant closures for unforeseen maintenance issues.”
To meet these demands and to keep the US market competitive, it is predicted that processors will invest in automation and robotics, which will reduce the risk of skilled labour shortages.