2020 beef price outlook tied closely to China
The million-dollar question in 2020 for beef producers is how much beef the average Chinese consumer will eat. According to Katelyn McCullock, senior ag economist at the Livestock Marketing Information Center, producers across all sectors of the beef supply chain will have a better year than 2019.
The Tyson plant fire, she said, remained the most significant market event of 2019. In 2020, she said the biggest influence will be China.
“China will influence your market one way or another, directly or indirectly, for the next 12 months more than any other singular thing and for a couple of reasons,” she told attendees at the Colorado Farm Show in Greeley last week. “It’s not necessarily directly beef demand from China but also coronavirus.”
She said she has heard the coronavirus compared to SARS in the early 2000s but said the difference is the Chinese economy is significantly larger than it was in 2003 when there were 800 SARS deaths. If the coronavirus reaches pandemic proportions, she said we will see the world’s second largest economy weakened which will have effects worldwide.
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In 2018, she said there was a massive jump in the percentage of carcasses that graded prime and the percentages continue to grow, with over 8 percent grading prime in 2019 and preliminary numbers in 2020 showing that the genetic progress continues to move forward. The cutout comparison, however, shows that the percentage is a bit ahead of demand.
Costco, she said, is regularly featuring prime cuts of beef targeting six-figure income consumers. Walmart recently announced they will be featuring higher quality cuts of beef, not necessarily prime but focusing in that direction.
“I think the Walmart consumer is a little more sensitive to a recession and will think about if they will still buy prime on a weekly basis, or even holidays, if you’re worried about the economy? Probably not but we’ll have to wait and see,” she said.
The choice select spread was very high in 2019 and McCullock said the rise in prime has taken some away from choice in some respects. One of the major factors in demand, however, remains the low cost of competing proteins. McCullock said chicken breast meat can consistently be purchased for less than $2 per pound and popular cuts of pork are widely available for less than $4 per pound. With any cut of beef, including ground beef, difficult to find for less than $5 per pound, she said it becomes a strong headwind for beef.
With the pork production disaster being faced in China, chicken production is being ramped up, something that can be done very quickly in the poultry sector. With wholesale breast meat prices under $1, it is a choice even Chinese consumers, who typically prefer other cuts, can be tempted by for the price. McCullock pointed out that most Chinese homes do not have ovens, something that drives their choice of meat cuts to prepare at home.
“With 1.4 billion people, eating a Quarter Pounder one more time per year is equal then to every U.S. person eating one more pound of beef,” she said. “That’s a big number. So no matter whether exports come from here or somewhere else, depending on how much beef they consume there, we’re going to win either way because it’ll soak up beef from everywhere else in the world.”
Because pork is so expensive in China, she said they are more likely to choose less expensive beef cuts from Brazil, Australia and New Zealand. If that meat is going to China, it’s not coming to the U.S., something that could drive up cow values.
As for plant-based substitutes, McCullock said red meat and poultry consumption was at an all-time high in 2019. Even with higher beef production, she said the beef didn’t go to cold storage but was consumed. This is a trend she said she expects to continue in 2020.
Heifer slaughter numbers were up 7 percent in 2019 and a high number of heifers are on feed now, she said. This begs the question of how many heifers will be available to enter the breeding herd and her prediction is a decrease of 3 to 4 percent of heifers used as replacements.
McCullock said she is expecting fed cattle prices to be similar to 2019 in the first part of the year before improving between 4 and 6 percent over each of the next three quarters. She’s calling for better prices for seven and eight weights feeder cattle moving forward depending on corn and soybean prices. She estimates a $10 per hundredweight gain from last year for 500- to 600-pound calves in the fourth quarter. Overall, she expects all fed cattle prices to be even stronger in 2021 based on the position within the cattle cycle. ❖
— Gabel is an assistant editor and reporter for The Fence Post. She can be reached at firstname.lastname@example.org or (970) 392-4410.
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