Reuters – The United States is importing record amounts of beef this year and exporting less after ranchers slashed the nation’s cattle herd to its lowest level in decades. That has tightened margins for meat companies like Tyson Foods.
Why it matters: The U.S. and Canada have the same drought-related stresses that pressure national herd numbers, and the impact is trickling through to trade balances in both countries.
The decline in cattle numbers, after years of scrambling for grazing on drought-fried pastures, led to soaring U.S. beef prices. Higher prices incentivize companies to import cheaper beef and discourage U.S. beef purchases by buyers including China, Japan and Egypt.
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Analysts expect lower demand for U.S. beef and higher costs for cattle to translate into negative quarterly margins for Tyson’s beef business, its largest unit, for the first time this year. The company is one of four processors that slaughter about 85 per cent of U.S. grain-fattened cattle. Quarter four results from the company were expected Nov. 13.
The U.S. Department of Agriculture expects the U.S. to become the world’s fourth-largest beef and veal exporter this year, down from second in 2022.
U.S. beef exports are projected to sink 14 per cent this year from 2022 to three billion pounds (about 1.4 million tonnes), the lowest since COVID-19 roiled meat processing and international trading in 2020, government data shows.
In 2024, when the USDA expects U.S. production to decline further due to tight cattle supplies, exports are forecast to hit an eight-year low of 2.8 billion pounds.
U.S. beef exporters such as Tyson, Cargill and JBS face a “double whammy” from higher prices and strength in the U.S. dollar, which makes American products less attractive to other countries, said Pete Bonds, a Texas-based cattle producer.
“The future of this industry is not here in the United States,” Bonds said. “It’s offshore.”
For Tyson, the loss of U.S. export business compounds margin pressure from higher cattle prices, Goldman Sachs analysts said. U.S. beef exports typically command higher margins than domestic shipments.
Goldman Sachs predicts margins will swing to negative 1.1 per cent for Tyson’s beef business from positive eight per cent a year ago.
Tyson CEO Donnie King in August warned low cattle inventories were leading to difficult export market conditions. The U.S. beef cow herd in January was the smallest since 1962.
Tyson has been reducing staff as its beef, chicken and pork units have struggled, with high prices weighing on consumer demand. The company said Nov. 9 that it will close two plants in Florida and South Carolina where hundreds of workers cut and package meat.
Meatpackers can use imports to help manage through low margins and high-priced U.S. cattle, analysts said. They often import lean beef from Australia and New Zealand to blend with fattier U.S. supplies to make hamburgers.
The USDA on Nov. 9 raised its forecasts for beef imports in 2023 and 2024 in a monthly report.
Total U.S. imports from January through September were up about six per cent from a year earlier, with Australian shipments climbing by 49 per cent, according to government data.
The Livestock Marketing Information Center, which analyzes the livestock industry, projects U.S. beef imports will reach a record 3.7 billion pounds in 2023, topping the previous high of 3.4 billion pounds in 2015, director Katelyn McCullock said. In 2024, imports are forecast to rise to 4.2 billion pounds, another new record, she said.
“Beef prices are already at record high in retail,” McCullock said. “With domestic supplies facing significant declines this year, this product coming in is helping alleviate what that potential increase could be.”
U.S. ranchers have not started to rebuild the domestic herd, producers and analysts said. More than half the nation’s cattle are in areas that are still abnormally dry. The number of heifers in U.S. feedlots as of Oct. 1 was up 1.3 per cent from a year earlier, signaling that producers are fattening them for slaughter instead of keeping them on farms to reproduce.
The rebuilding process will likely be slow, keeping a lid on exports, producers and analysts said.
“Cattle numbers are tight and getting tighter,” said Derrell Peel, agricultural economist for Oklahoma State University.
That echoes much of the situation in Canada. In October, a report from the USDA suggested that Canadian beef cow numbers would fall 3.7 per cent in 2024.
Canadian analyst Anne Wasko of Gateway Livestock Marketing in Alberta further suggested that Canadian beef production would fall next year. Wasko also noted that Canadian beef exports were down five per cent in 2023 as of late October, and that Canada was taking in more U.S. feeder cattle. –With files from Jeff Melchior.
