Kay’s Cuts: Here’s the US beef news – both good and bad
Steve Kay, US Cattle Buyers Weekly
via BEEF Central (Australia) - May 13, 2019
A monthly column written for Beef Central by US meat and livestock market commentator, Steve Kay, publisher of US Cattle Buyers’ Weekly
THOSE of us who write about the beef industry, from Australia to North America and beyond, rely on a steady stream of news, good or bad, to stay in business.
No one enjoys writing about natural disasters, like Australia’s catastrophic droughts or floods, or about disease outbreaks that threaten animal agriculture. We would much prefer to write about the good news, such as the growing global demand for beef and other proteins that will keep everyone in business.
Journalists cannot be choosy however. All we can do is report on the good and the bad, and seek analysis and opinions that will help inform our readers as to what all that news means. For me, I always focus first on what it means to producers, as they are the bedrock of the beef industry. I then focus on consumers because without them buying beef, there literally is no industry.
Strong US demand
With that in mind, I’m happy to report that demand for US beef at home and abroad is remarkably strong. The steady performance of the US economy, from solid GDP growth to job creation, rising wages and low unemployment rates, has put more money in consumers’ wallets than for at least a decade.
The classic definition of improved demand – larger volumes sold at higher prices than a year ago – is playing out almost every week.
The result is that beef remains king of the grocery store meat case. The classic definition of improved demand – larger volumes sold at higher prices than a year ago – is playing out almost every week.
USDA’s All Fresh retail beef price in March averaged US$5.78 per pound, up 3.0pc from March last year. The USDA Choice grade beef price averaged US$6.07 per pound, up 3.4pc. That’s especially significant, as Choice accounts for 70pc or more of all the beef that is quality-graded in the US.
US beef exports are down slightly on last year, in part due to tariff pressures in Japan. For the first quarter, exports were slightly below last year’s record pace.
“US beef cuts are still subject to a 38.5pc tariff in Japan while our competitors’ rate is nearly one-third lower at 26.6,” notes Dan Halstrom, president and CEO of the US Meat Export Federation.
“This really underscores the urgency of the US-Japan trade negotiations, which must progress quickly if we are going to continue to have success in the leading value market for US beef and pork,” he said recently.
Revenge of the ‘Funny Money’
On the supply side, US cattle feeders are battling both packers over cash prices and collapsing futures prices caused by pension funds’ liquidating their live cattle contracts.
Some analysts have dubbed this the “Revenge of the Funny Money.” The plunging futures market last week caused hedged cattle feeders to sell cattle early in the week at lower prices for the second successive week. Prices are likely to keep going lower because of the large basis difference between cash and futures prices. It is challenging at this point to know what factors will come into play to stabilise cash prices, say analysts.
Record profits for Tyson
Meanwhile, Tyson Foods, the largest US processor of grainfed cattle, continues to rack up record quarterly beef profits. It reported operating income of US$156 million in its fiscal 2019 second quarter ended March 30. This was its beef segment’s fifth record quarterly profit in a row.
The achievement came in what Tyson calls its most volatile quarter. Beef for the first six months earned US$461 million, versus US $348m in 2018’s first half. So the segment is on target to beat its full-year record of US $1.014 billion set in fiscal 2018.
Now throw in the potential impact of African Swine Fever on the global protein industry and anything could happen to beef prices. Tyson president and CEO Noel White says that in his 39 years in the business, he has never seen an event that has the potential, as ASF does, to change global protein production and consumption patterns.
Court challenge full of factual errors ...