28 June 2010

15 minute read

Beef/Cattle Trade Summary

Beef exports through the first 4 months of 2010 were 26 per cent above year-earlier levels, with exports forecast to increase 10 per cent this year. US beef imports through April, however, were down 20 per cent from 2009. Further strengthening of the US dollar should relieve some of the recent constraints in the supply of imported beef because its price would become relatively cheaper in US dollars.

Which Is Stronger: The US Beef Export Market or the Dollar?

The US dollar took a relative upturn in late April and has since strengthened significantly; however, based on weekly export data, the momentum in the US beef export market evident during first-quarter 2010 shows no signs of slowing in the second quarter of this year. First-quarter exports were already strong; 478 million pounds were exported from the United States, a nearly 25-per cent increase from the first quarter in 2009. Exports increased 30 per cent year-over-year in April and are expected to increase through the remainder of this year. Expectations for the third quarter are equally as strong. Historically, the third and fourth quarters are the strongest for exports as the Northern Hemisphere enters the summer.

The pace of beef exports may not begin to slow until late in this year, although the increasing value of the US dollar could be the primary factor that dispels some of the momentum in the US beef export market. Exports to Asian markets, however, look to maintain somewhat of a seasonal pattern and, most important, should continue to demonstrate substantial year-over-year growth. The Japanese market, for instance, should maintain steady post-BSE growth, as should the Korean, with the latter market increasing toward pre-BSE export levels at a much quicker pace than Japan. Recent outbreaks of foot-and-mouth disease in Japan and Korea are expected to have no major impact on US beef exports. Finally, demonstrative of current dynamics in the US beef export market, exports of US beef to Russia— although historically small—have increased through April from 780, 000 pounds in 2009 to just under 23.8 million pounds in 2010. Growth will likely be limited by Russia’s quota of 21,700 metric tons product weight on beef imports from the United States, a mark that may be met fairly soon.

Total 2010 beef imports are forecast at 2.5 billion pounds, a 5-per cent decline from 2009, and first-quarter 2010 beef imports were 19 per cent below the previous year’s level. Any further strengthening of the US dollar vis-à-vis the Australian and New Zealand dollars should have greater implications for beef imports to the United States as opposed to exports, making imported beef less expensive and encouraging imports of beef from Oceania. This would aid in relieving recent supply constraints of beef for grinding.

Live Cattle Imports Strong in the Second Quarter

Second-quarter cattle imports should be substantially higher, year-over-year, due to increased imports of both slaughter and feeder cattle from Canada and feeder cattle from Mexico. Strong US prices, favorable feedlot margins, and the US dollar’s strengthening throughout May against the Canadian dollar while maintaining ongoing strength against the Mexican peso, also add momentum to cattle imports and should partially offset the typical mid-year lull. Canadian cattle placements were up earlier in the year, resulting in increased marketings by the second quarter and subsequent increased export potential for slaughter cattle to the United States.

AMS weekly reports show imports of Canadian slaughter cattle 21 per cent higher, year-over-year, through May, a figure that should remain elevated into the third quarter. Canadian feeder export incentive was not present throughout the first quarter; however, April imports of Canadian feeders were 57 per cent higher yearover- year, and AMS weekly reports show Canadian feeder imports for May 75 per cent above year-earlier levels. Imports of Mexican cattle through April, which are primarily feeders, were also 21 per cent higher year-over-year. Such elevated import levels should contribute to a strong second quarter, especially in terms of feeder import numbers.

Special Article

Grain and Grass Beef Production Systems

Increasing demand for alternatives to conventionally grain-fed beef products has led to changes in beef production and technologies that support an expanding array of products aimed at niche markets. Attributes of beef production such as antibiotic use, greenhouse gas production, land use, and health concerns, are becoming increasingly important to consumers, who may be willing to pay premiums for products that meet their criteria. Beef from production systems alternative to conventionally grain-finished beef—natural, organic, and grass-fed or finished— make up about 3 per cent of the US beef market and, combined, have grown at a rate of about 20 per cent per year for several years, according to a market note published by the industry group, Bord Bia (Irish Food Board). Growth in these alternative beef product markets has survived the economic challenges of the last 2 years. This article compares beef produced through these two broad categories of production technologies: grain-fed versus grass-fed systems.

Beef Products Differ by Production System

Beef production in the United States has always been predominantly a forage-based industry. Virtually all beef production systems in the United States require significant amounts of forages or other cellulosic roughage in rations, inputs that have historically been abundant in the form of rangeland, other pastureland not suitable for crops, crop residues, and harvested forages. Early Colonial production was primarily from grass-fed 3-to-4-year old cattle, often older spent draft animals. Over time, and as land resources became more intensively used, the introduction of grain feeding—especially during the last half of the 20th century, in part as a way to market abundant grain supplies—shortened the beef production period and resulted in a more tender meat product due to more intramuscular fat, or “marbling.”

Production practices can vary widely even across specific beef production systems. However, cattle are typically raised on range or pasture land for most of their lives and then placed in a feed-lot. This is largely because cattle—which are ruminants (animals that have multi-compartmented stomachs)—are very good at converting cellulose, a significant component of all plants, into meat. Most cattle, whether finished with grain or forages, spend at least half of their lives on pasture of some sort (fig 1).

Much of the animal’s initial weight gain is through some form of forage, and just prior to placement in the feedlot, roughages often account for almost the entire ration fed to a calf, be it pasture, hay, silage, or alternative forage. Cattle may enter the feedlot directly after weaning (calf-fed) or may be backgrounded in dry lots (pens) or on pasture (“stockered”) prior to placement in feedlots as long or short yearlings (See LDP-M-190, “Southern Plains Cattle Sell at a Premium to Northern- Central Plains Cattle”). Contrary to popular perceptions, the digestion of starches in grains also produces lower levels of greenhouse gases—one-third to two-thirds lower—than digestion of the quantities of forages necessary to achieve the same biological effects in cattle (e.g., Pitesky, Stackhouse, and Mitloehner, 2009).

Production system choices attempt to make the “best use” of regionally and seasonally available resources to produce a high-value commodity acceptable to consumers. For example, in the Southern Plains, highly nutritious wheat pasture, often available during the winter, provides a limited number of cattle a means to gain weight rapidly at a time when most forage plants are dormant. Regardless, in conventional beef production, cattle will be on feed for 120-200 days and gain between 2.5 and 4 pounds per day. A conventionally fed steer at slaughter will have entered a feedlot weighing on average 750-800 pounds, will have left the feedlot typically weighing about 1300 pounds, and will have gained about 500 pounds in the feedlot. Fed heifers are marketed weighing 100-200 pounds less. The cattle are fed a scientifically formulated ration in the feedlot that consists of about 80-85 per cent grain, distillers grains, and/or other sources of starch/energy, and 10-15 per cent hay, silage, or other forage, and the remaining five per cent will typically consist of a protein-rich meal. These rations are also likely to contain supplemental vitamins and minerals, ionophores (which mimic but are not antibiotics), antibiotics, and artificial growth hormones.

As most feed grains are highly nutritious seeds of grasses that are readily amenable to ruminant diets, feeding grain to cattle after they have had sufficient opportunities to grow on forage-based diets often shortens the period from birth to slaughter, while yielding the largest, highest grade carcasses. Generally, the shorter term, grain-inclusive production systems reduce feed and ownership costs (land use, interest expenses, etc.) compared with the more forage-intensive production systems. The longer term, long-yearling and grass-fed/finished systems can incur the greatest ownership costs because they require the most time between birth and slaughter. However, long-yearling programmes often result in large carcasses, giving them per-unit advantages over the generally smaller carcasses of grass-fed beef. Calf-feds engender the shortest birth to slaughter period, and at times can incur the lowest costs per unit.

Since most cattle invariably consume forages for most of their lives, whether the production is conventional or not, a distinction must also be made between forageor grass-fed animals and grass-finished animals. Cattle marketed as grass-finished have exclusively grazed grass, pastureland, or other forages their entire lives, and, most importantly, have been fattened solely on grass or forages prior to slaughter. Finishing cattle on grass or forages alone requires large quantities of high-quality forages and operator-management skills to achieve adequate levels of finish to carcasses. Otherwise, grass-fed beef is not substantially different from beef from culled cattle or imported as processing beef. Producers who market high-quality grass-finished beef have removed some of the variances in the product that can result from exclusively forage-feeding an animal, due to differences in genetics, forage type and quality, and/or other management practices. They have achieved a more standard product through careful attention to grazing management, and, often, by using breeds with certain characteristics or higher quality genetics. As types and quality of forage fed to cattle affect animal gains and carcass characteristics, much greater management intensity (and cost) is placed on animals that are exclusively finished on forages. The animals must have access to highquality forage, which is not naturally available year-round in most of the United States, particularly during the winter and summer months. In addition, cold temperatures increase the animals' energy requirements to maintain normal body functions. Likewise, reduced feed intake presents a challenge to forage-feeding cattle during warmer temperatures. Forage quality also varies with the growth stage and season of forage plants, whether in situ or harvested.

Beef produced from grass-finished animals is inherently much leaner and does not exhibit the marbling achievable through conventional grain-fed beef production. Although they can grade higher when provided proper forages, most grass-finished carcasses will grade select, produce 15-20 per cent less beef, and, most distinguishably, the carcass fat will be yellowish. In one study comparing conventionally grain-fed and grass-fed steers fed to 11 millimeters of back fat, or when pasture availability became limiting in the case of grass-fed steers, grassfinished steer carcasses were 19 per cent smaller than conventionally fed steer carcasses, took 24 per cent longer to reach the endpoint, and had a marbling score 15 per cent lower. Yellow fat results from higher levels of carotene and some lipids in the beef, giving the beef a “gamier” flavor that some consumers prefer. However, grass-finished beef has also been shown to be higher in desirable Omega-3 fatty acids than conventional beef (e.g., Faucitano et al., 2008; Leheska et al., 2008). Grass-fed beef production is often readily amenable to natural and organic production systems because cattle not in confined quarters often require fewer dietrelated antibiotics to remain healthy.

Some grass-fed/finished beef is produced—and certified in the case of organic beef—without the use of ionophores, antibiotics, or artificial growth hormones.

Meat from each production system meets the preferences of some consumers. Taste panels generally characterise beef from cattle finished on grain-based diets as having a milder flavor and brighter color and as being more tender than grassfed/ finished beef. Fat in beef generally contributes to the tenderness of the product, primarily due to increased marbling that also carries the flavor in the meat most consumers prefer (e.g., Brewer and Calkins, 2003; Sitz et al., 2005). Producers of grass-finished beef, however, can often obtain premiums for their products—as can producers of natural, certified organic beef and other niche-targeted programmes—due to consumer tastes and preferences for grass-finished beef and willingness-to-pay.

Implications for Beef Production and Consumption

Grass-fed beef production technologies offer producers attractive, commercially viable alternatives to conventional grain-fed beef production. Each production alternative supplies a product with slightly different attributes preferred by an increasingly diverse array of consumers. However, at some point, and with continued growth in niche-market demand, the decision to pursue grass-finished production could begin to necessitate a number of tradeoffs. The direction many of these tradeoffs suggest is toward higher cost of production and reduced beef supplies. For example, it could become necessary to liquidate some cows to make room for grass-finishing programmes, reallocate cropland to provide the necessary high-quality forages, and vary selection programmes to tailor cattle genetics amenable to alternative beef production technologies. Already, providing locally sourced beef is straining slaughter capacity—e.g., supplies—in some local areas. Generally, because they lack the means to do so, local meat processors are less likely to salvage the full array of byproduct values than larger packers, thus reducing supplies of intermediate inputs to a number of industries such as pharmaceuticals, cosmetics, and lubricants. Because byproducts contribute significantly to packers' profit margins, this also makes it necessary for small processors to bid less for market-ready cattle. As in most cases, consumers drive production decisions, and as consumer preferences continue to shift toward products from more forage-based beef production systems, solutions will need be found to many actual or anticipated short-term constraints on producing the desired final beef products.

Dairy Summary

Moderate feed prices and improving output per cow will boost milk production this year and in 2011. Export prospects and domestic commercial use are also expected to show recovery this year and next. However, the higher milk production will act to keep prices from rising much into 2011 from 2010.

Higher Milk Production to Keep Prices Moderate Despite Improving Demand

Feed prices are expected to remain moderate in both 2010 and 2011. Corn prices are projected to be $3.45 to $3.65 per bushel for the 2009/10 crop year and to rise to average $3.30 to $3.90 per bushel in 2010/11. Likewise, soybean meal prices are expected to average $295 per ton this year and average $230 to $270 per ton 2010/2011. Prices for feed ingredients have pushed the price of the 2010 benchmark 16-per cent protein dairy feed ration 10 per cent below 2009. Early forecasts are that the price of the ration will increase only slightly in 2011. Moderate feed costs may slow the rate of decline in the number of cows in the dairy herd. The May Livestock Slaughter report showed dairy cow slaughter in April above the corresponding month in 2009. The relatively high slaughter rate, combined with the large number of retained heifers, as indicated in the January Cattle report, suggest that the US dairy herd was being freshened. The US herd is expected to average 9,075 thousand cows in 2010 and contract fractionally to average 9,040 in 2011. This represents a small year-over-year contraction compared with the 1.2 per cent and 1.4 per cent year-over-year declines observed in 2009 and 2010. The Cooperatives Working Together programme is offering another herd buyout, with the majority of cows purchased expected to move to market during the summer quarter.

The herd liquidation appears to be slowing; however, the feed price forecast for both this year and next, along with herd freshening, will combine to boost output per cow. Milk production per cow is expected to increase nearly 2 per cent in 2010 over 2009 to about 20,980 pounds per cow. In 2011, production per cow is forecast to rise another 1.8 per cent to 21,355 pounds. The expected increase in milk per cow will provide 190.4 billion pounds of milk in 2010 and 193 billion pounds in 2011; both forecasts represent yearly increases in milk production from a slightly smaller herd compared with recent years.

Lower milk production in Oceania has tightened world supplies of major dairy products. The impact on US markets is to lower milk equivalent imports on both a fats and skims-solids basis and support exports. Exports of cheese, butter, and nonfat dry milk (NDM) were all higher in April, and the difference between US and international prices remain favorable for US exports. However, the strong US dollar relative to the Euro and relatively large European Union (EU) intervention stocks of powder could be factors that limit US powder exports. Notably, the EU did not accept any bids for skim milk powder in its most recent intervention tender. Milk equivalent exports are projected to reach just over 5.0 billion pounds this year and 5.1 billion in 2011 on a fats basis. The corresponding export forecasts on a skims-solids basis are about 26 billion pounds and 27.1 billion pounds. All forecasts represent increases from 2009. Milk equivalent imports both this year and next will likely be below 2009. Imports are forecast at 4.8 billion pounds this year and 4.9 billion in 2011 on a fats basis and 4.4 billion pounds and 4.8 billion pounds for 2011 on a skims-solids basis.

Ending commercial stocks on a fats basis are expected to be drawn down both this year and next, reflecting climbing domestic commercial use, which is forecast to rise 1.2 per cent in 2010 and by 1.5 per cent next year. This suggests a recovery in domestic cheese use. On a skims-solids basis, ending stocks are expected to change very little this year and next, reflecting virtually flat domestic commercial use this year compared with 2009 and about a 1-per cent increase in 2011.

While demand, both foreign and domestic, is recovering, continued increases in the milk supply will keep prices from rising appreciably. Cheese prices are forecast to average $1.485 to $1.525 per pound this year and rise slightly to $1.520 to $1.620 per pound next year. Butter prices are projected to average $1.475 to $1.545 per pound both this year and slip to average $1.390 to $1.520 next year. Improving domestic demand for these products has firmed prices, but higher milk supplies will keep a lid on prices. NDM prices are forecast to average $1.200 to $1.240 per pound in 2010 and rise to average $1.235 to $1.305 per pound next year. Tight international supplies and the expectation of stronger exports support the expected higher prices. Whey prices are forecast to average 36.5 to 38.5 cents per pound and rise fractionally to 37.5 to 40.5 cents per pound in 2011.

Class IV milk prices are forecast to average $14.45 to $14.95 per cwt this year and to rise slightly to $14.35 to $15.45 per cwt in 2011. The strength of the Class IV price relative to the Class III price indicates the shift to butter powder relative to cheese, and could help firm cheese prices. The Class III price is projected to average $13.95 to $14.35 per cwt in 2010 and climb to $14.35 to $15.35 per cwt in 2011. The all milk price is expected to average $15.75 to $16.15 per cwt in 2010, with a slight rise to $15.80 to $16.80 in 2011.