From the hip Fewer cattle don’t necessarily mean less beef, and dairy is a major influence
With all the talk about the reduction of cattle inventory in Canada and the U.S. it is a good time to also revisit the balance of world beef trade. In which countries is beef demand and supply in balance and where do we expect change? More importantly — what does this mean?
India continues to have the most cattle worldwide although those cattle are largely buffalo and spent dairy cows. India will continue to grow in beef production as it ramps up the dairy herd. It is one of the few countries in which beef inventory and production is expected to rise. This type of product goes to price-sensitive areas such as the Middle East and South Africa (MESA) and Vietnam.
Ukraine recently reported an increase in beef exports and this will also be spent dairy or dairy steers as the beef herd in Ukraine is very small.
Overall global beef production will take a hit in historically heavy export-dependent regions such as Argentina and the EU. Both Korea and Russia need more cattle. Russian imports from both North and South America have dropped due to the recent ban on cattle, pigs and turkeys from Canada and the U.S. over ractopamine concerns. This will force Russia to look for a meat supply outside of North America.
Japan still has steady production and consumption despite the most rapidly aging population in the developed world and still has room for imports. The contamination of fish and livestock with radiation has made Japan an active trade partner who this last month lifted the import restrictions from under 20 to under 30 months.
The EU continues to decline in consumption, production and exports. What was once a very open market possibility for non-hormone beef may well be just a simmering export opportunity in a few years. Consumption continues to decline as Europeans lean toward a vegetarian diet and at the very least, consume less meat.
Our visits with French farmers brought to life the complexity of this situation. France continues to pursue land conservation and increase regulations. Young, aggressive farmers were talking about exiting in 10 years because by that time, regulations may make it difficult to farm. It would seem that this program of land conservation may take a lot of land out of production, but population growth and consumption are both slowing and both imports and exports have softened.
Fewer cattle, more beef
Actual global beef production may shift down by just a shade but it still exceeds growth. This means that there is more production per unit, which is now seen worldwide. Achieving beef balance in this environment is tough especially for countries highly dependent on export of which Canada leads the way along with New Zealand (82 per cent) Uruguay (77 per cent).
Beef balance — that equilibrium between production, consumption and exports — has been achieved in Uruguay, India, Argentina and Australia. In comparison, Canada’s production exceeds consumption and depends on exports while also being a top importer of beef. This beef comes largely from the U.S., which has dramatically increased exports into Canada. The U.S. has transitioned from a net importer of beef to a net exporter as it struggles with increased production per unit and rapidly declining consumption.
Although North American inventory is the lowest since the 1950s, this is not enough to offset the massive increase in unit production. At only a two per cent heifer retention, a continuation of the drought in the U.S. will only add to the production as commercial cows come to town. The U.S. will be in position for cattle prices to increase but that remains highly dependent on export activity.
What does this mean? In an environment of increasing gain costs, there is little black ink and a lack of enthusiasm. When this happens, the pressure is on the breeding stock and that is a good time to buy. Over time we have learned that buying bred cows at $1,200 or less serves the producer well. It may be a decent year to also breed heifers but there is a chance you may have to hold them into 2014. Cattle feeders will continue to focus on steers for the feed conversion so there is little need to go head to head with them. As for those heifers in the pen, a little patience will be a virtue.
From a global perspective, dairy is beef and as dairy herds expand in all areas outside of North America, we can expect to see beef production increase. The EU will lift quota restrictions in 2015. For Canadians this translates into an opportunity to invest in dairy genetics. Beef consumption trends are changing and grass-fed beef is gaining in popularity, as is beef without beef promotants. Food safety is king. The recent horsemeat scandal is not helping the beef industry and prices reflect that. With so few countries achieving beef balance we can expect to see continued volatility in beef cattle markets worldwide and unexpected changes in trade.