Mike Miller: Beef demand expected to be good through 2012
If Mother Nature works in their favor, beef producers can expect another good year in 2012.
“Most of the industry is looking fairly bright, particularly with what has happened in the South Plains over the last 12-18 months,” according to CattleFax economist Mike Miller. “There has been some relief in Texas and Oklahoma during the last 30 days. The weather outlook for the next six to 12 months shows a decent chance that Texas will get some limited moisture. If that’s the case, we should view the world a little differently through 2012 in terms of beef cowherd liquidation.
“If not for the drought, we probably wouldn’t have seen the drop we have in cattle inventory during the last few years,” Miller said. “In 2011, we were up 225,000 to 250,000 head in the number of cattle harvested, which is about a three percent increase from what we saw last year. In 2012, we anticipate a significant decline in the number of beef cows harvested, including dairy cows.”
For the last 14-16 years, Miller said beef cow inventory in the U.S. has significantly declined. “On January 1, we anticipate we’ll have 30.2 to 30.3 million head, which is down 165,000 head from the previous year. In 2013, we’ll probably see another slight decline from where we were at on Jan. 1, 2011,” he said. However, with cooperation from Mother Nature, 30 million head should be the low watermark for beef cow inventory for the next 10-15 years. “Keep in mind, we will need some moisture in the South Plains for this to happen.”
From a demand standpoint, Miller said while domestic demand is still trying to recover, the U.S. saw a significant jump in exports in 2011.
“We have continued to promote beef overseas, and given the value of our dollar, U.S. beef has been a tremendous buy for those markets,” Miller said. “We anticipate that will continue in 2012.”
In 2011, economists expected a 10-12 percent increase in beef exports, but that figure was closer to 23 percent. “U.S. beef was valued very well against all other products around the world,” Miller explained. “In 2012, we anticipate another 10-15 percent increase in the amount of beef we export, and we also anticipate a slight increase in the amount of beef we import.”
Miller said the increase was surprising, given the limited access to markets like Japan.
“Japan is sending signals that they’ll look at how they handle U.S. imports, and they may relax some of the restrictions they have on our product. Most of us are cautious on whether they will follow through, although it is encouraging they are having those conversations. It may be 2012 or 2013 before we have full and complete access to their markets,” he added.
Miller explained before the bovine spongiform encephalopathy (BSE) case in the U.S., the value of U.S. exports was $175-$200 a head.
“After BSE, that value went from $200 to $50 very quickly. It has been a slow and painful path back, but last year we were $110 higher than where we were in 2009. We anticipate that trend will continue and settle around $250 a head,” he explained.
Hide and offal values continue to make significant climbs in price, increasing the value of the carcass. Mainly, this is because of an increase in car sales in countries other than the U.S., which has caused a tremendous demand for leather. “We will continue to see growth in that market during the next couple years,” Miller said.
The U.S. continues to export more product than is imported. “We haven’t been able to attract as many products into our market, like beef from countries like New Zealand and Australia, mainly because of the value of our dollar,” Miller said.
“In 2004-2005, we had a sizable increase in per capita consumption of beef. Since then, we have seen a significant decline, which will continue in the coming years,” Miller predicted. Per capita consumption has dropped from 60 pounds to the 52- to 53-pound range in the last few years. “It will be surprising if we get back to the 65-pound level anytime soon,” he added.
Consumers will start 2012 by seeing an increase in what they pay for beef in the grocery store.
“Retailers won’t be able to absorb the higher prices without passing them on to the consumer,” Miller said. “In the short term, that may impact demand a little, but we need the retailer to pass the full additional cost on to the consumer. We need to get the consumer used to paying a little bit more so we can keep our prices as high as we’ve enjoyed the last couple years.”
There has been a tremendous demand for the lower-value meat cuts like trim meats, and good demand for cuts from the chuck and round. The high-end steak cuts from the rib and loin have struggled most.
“We need the rib and loin values to rebound, and prices for the other cuts to stay consistent in order for prices to remain good for the next several years,” Miller said.