click image to zoom Just how far will beef output fall over the next two years? That question has been pondered considerably on many fronts since the drought of 2011 developed in the key cow-calf states of Texas and Oklahoma. And what started as a serious situation in those two key states has, as most readers know, spread to a far larger portion of the U.S. and is now impacting a far larger proportion of the cow herd.
Based on USDA’s final range and pasture conditions ratings for 2012 which were released on October 28, states with 40% or more of range/pasture lands rated as in poor or very poor condition accounted for 70.5% of the nation’s beef cows. That figure was 46.1% on October 30, 2011. Only 21.6% of the nation’s cow herd cow herd resided in states with 40% or more of their range/pasture lands rated in good or excellent condition. That compares to 36.7% one year ago.
And the impact has not been felt just in the cow herd. The disruption that has occurred in the timing of feedlot placements over the past couple of years is going to come home to roost (please excuse the chicken analogy) over the next few months. We commented after last month’s Cattle on Feed report about the relatively large number of lightweight placements being driven by poor wheat pasture conditions. The same will likely be true for December and then look out — there does not appear to be many feeder cattle behind those since a high proportion of those light calves have already moved to feedyards.
All of this has been discussed — likely ad nauseum — over the past two years but we think it bears reviewing relative to likely beef output levels in 2013 and beyond. The chart at top right shows beef output forecasts from the Livestock Marketing Information Center in Denver and they are, we think, pretty shocking.
The quarterly year-on-year changes for 2013 are huge — 4.5%, 4.7%, 3.7% and 6.3% for Q1 through Q4, respectively. That 6.3% is the largest quarterly year-on-year decline since Q3-2004 when the industry was adjusting to lower exports following the first BSE case in December 2003. To find a larger yr/yr quarterly decline NOT associated in some way with BSE, we had to go back to Q1-2001 (-7.1%) and then Q2-1987 (-8.1%).
Further, the 2013 changes are just the start. The LMIC forecasts for 2014 predict quarterly production figures that are another 4.9%, 4.8%, 4.4% and 4.4% lower than in 2013. Add those up and you get two-year declines in quarterly beef production of 9.2% in Q1-2014, 9.5% in Q2, 7.9% in Q3 and 10.4% in Q4. Ouch.
More pork produced in the U.S. than beef? It is hard to believe but that is indeed the case if LMIC’s 2014 forecasts play out. The reductions in beef output and renewed growth for pork production in 2014 will put beef tonnage at 23.509 billion pounds and pork tonnage at a new record level of 23.628 billion pounds. To be honest, we never though we would see the day come — and we still may not but the trends are very strong at the moment. These changes are predicated on normal crop weather in 2013 and 2014 and we all know that may be a heroic assumption. But the fact that a well-known, respected group such as LMIC could forecast higher pork than beef production in the U.S. is pretty astounding.
Let’s be clear, though, that U.S. beef consumption will still exceed pork consumption since the U.S. beef sector exports only about 10 percent of total output where the U.S. pork export exports in excess of 20% of total output. Per capita beef consumption is forecast at 52.9 pounds in 2013 and 50.2 pounds in 2014. Both will be record lows. Per cap pork consumption is forecast at 42.3 pounds and 42.6 pounds in those two years, respectively. Those figures are still higher than the all-time low of 38.5 pounds in 1976 but would rank as the third and fifth lowest on record.
As we have pointed out many times, these lower consumption figures are driven far more by supply and cost issues than by demand. While beef and pork demands have softened some, they have been relatively stable since the post-Atkins declines of 2005 and 2006. The reductions in consumption are driven by lower output in the case of beef and growing exports in the case of pork. The output of both sectors would have been significantly larger had costs not exploded since ‘07.