A Few Thoughts By John Nalivka – On the market
Beef markets continue to perform well. Demand, supported by strong U.S. export sales as well as U.S. consumer purchasing has been well balanced with beef supplies as we head into the 2nd quarter and Easter. That balance is key to the market outlook for the remainder of the year.
Demand is simply not as easy to quantify and instead, the discussion often becomes more anecdotal lacking the same information we have concerning supply – herd size, cattle on feed inventories, slaughter, cold storage, carcass weights, production, etc. But, from the demand side, U.S. beef exports which are key to beef markets were up 10 percent in 2018 from the prior year while U.S. beef imports were unchanged. During January of this year, U.S. exports continued to perform in spite of higher prices and a strong dollar posting a 2 percent gain over the prior year.
While China has been on the radar as a key market for U.S. beef, Japan, South Korea, Mexico, Canada, and Hong Kong are still our most important trading partners accounting for 82 percent of total U.S. beef exports. In 2018, Japan accounted for 28 percent of U.S. beef export volume with South Korea at 20 percent and Mexico at 14 percent. At the same time, only 1 percent of U.S. beef exports went to China.
In addition to beef exports, the pork industry is increasingly encouraged by the opportunity to ship sharply more pork to China as the Chinese are significantly impacted by Asian Swine Flu and estimated losses in pork production ranging as high as 20 percent. In 2018, sales to China represented 6 percent of total U.S. pork export volume and indications are that figure could double in 2019. As with beef, Japan is the largest importer of U.S. pork accounting for 30 percent.
Regarding supply, a key factor in 2019 is carcass weights falling sharply below a year ago as feedlots stay current with marketing cattle and feeding performance is hampered by weather. By the end of March, steer carcasses were 12 lbs. lighter than a year ago while heifer carcasses were 11 lbs. lighter. YTD, this leaves carcass weights the lowest since 2015. The weighted average combined steer-heifer weight is 13 lbs. under a year ago. This sharp drop in weights makes a significant difference in beef production and when coupled with strong demand definitely paints a positive picture as shown by a 2 percent increase from a year earlier in the average retail Choice beef price for January and February. The retail fresh price for the period was up 3 percent from a year ago. Beef production for January and February was up 5 percent from a year earlier.
If weights were equal to a year ago, fed beef production would be 1 percent higher when combined with current slaughter, particularly heifer slaughter which YTD, is 8 percent higher than a year ago. Weights will be key to supply as cattle numbers increase into the 3rd quarter and 2019 progresses.