Beef’s Role on the World Wide Stage
By: Terri Queck-Matzie
Global demand for beef is rising, while global supplies have stayed stagnant for nearly seven years. Producers are working to change that, but even their best efforts will take three to five years to take effect. With an 80-million person per year worldwide population increase, “It’s simple economics,” says Global AgriTrends CEO Brett Stuart. “Any increase in production will pay.”
But even “simple economics” aren’t simple in the hands of an analyst like Stuart. What is obvious is also complex. At the Iowa Cattle Industry Convention held in Des Moines last December, Stuart outlined the global forces that are, and will continue to, affect cattle markets here at home.
“There’s a lot going on,” says Stuart. “We are truly in uncharted water.” Global AgriTrends, in cooperation with CattleFax, monitors global protein markets and their relevance to the local scene. “And without a doubt, the key driver is the beef market.”
High beef prices are a global phenomenon, not just a U.S. scenario, but Stuart says eventually supply will catch up to demand; the question is when, and what the effect will be.
The World According to China
China is the world’s leading importer of beef, and consumers have developed a preference for grain-fed product, a key market influence. China remains closed to the U.S. because of the BSE ban, but it has recently opened to Brazil and Ireland, and Stuart predicts the U.S. won’t be far behind. Beef is the next, new, hot thing in China, and while it can be difficult for governments to navigate those waters, he says multi-national companies are having more success. As China faces food safety issues with domestic products, imported foods are becoming more desirable to those who can afford them.
China, like many other developing countries has a growing middle class (the world’s 300-million-person middle class is expected to double in the next eight years) that demands more, and higher quality, protein.
“Population and income drive increased meat consumption. And these are countries that don’t have the resources to produce more food,” says Stuart. In addition, existing resources may not be wisely used. The Chinese government just cut off funding for GMO research.
Half of the pigs in the world live in China, and the country has begun liquidating sows. Historically, they supplement these gaps with U.S. pork.
Stuart says the move is all about corn. China is now the Number 2 corn producer in the world, growing 8 billion bushels per year at a price of around $9.50 per bushel (with 95 percent still harvested by hand). But even though corn is stockpiled, the government is concentrating efforts on maintaining a high price to encourage planting next year. “That’s their biggest fear,” says Stuart, “that farmers won’t plant corn next year. Because there isn’t enough corn traded in the world to make up the difference if they don’t.”
Further accentuating the diversity and complexity of today’s global market, India has become the Number 2 exporter of beef in the world, behind Number 1 Brazil. While Brahman cattle are worshiped in the Hindu religion and freely roam streets untouched, water buffalo are not. Muslims in northern India have turned this resource into a significant market force.
India’s production growth is forecast to outpace everyone else’s. It currently supplies 37 percent of beef imported by the Greater China region – China, Hong Kong, and Vietnam – to the tune of about $4 billion a year. That dollar amount is hard for even political foes of Indian beef production to overcome.
Stuart says there are also “imbalances” in global protein supply and demand. U.S., Canada, and Mexico beef; Chinese beef; Russian beef, pork, and poultry; and U.S. pork all saw record high prices in 2014, indicating a shortage of supply. Meanwhile Russian bans on European Union and Canadian pork (backlash from Russia over Ukrainian sanctions); expanded beef production in Brazil; and the increase in Indian water buffalo production created surpluses in those parts of the world.
“The rubber band is very tight between supply and demand.”
What Goes Up Must Come Down
The worldwide increase in population and income paints a rosy picture if your sitting on the supply, but Stuart warns against being too bullish. “Markets are like airplanes, sooner or later they all come down.” He adds this one will be up there for a while. “It’s not coming down anytime soon, but it’s still an airplane.”
United Nations predictions for poultry alone show a 150 percent increase (of total U.S. poultry production; if all growth had to come from the U.S.) in consumption demand in the next nine years. Beef estimates are for an additional 9 million tons. “Keep in mind we’ve had virtually no increase in U.S. beef production in the last seven years,” says Stuart. “That’s pretty positive.”
Global prices in October were up 25 percent from one year ago. “We’ve all seen what the U.S. prices are doing, but this is the global market,” reminds Stuart.
He says those kinds of profits present a huge opportunity. “First of all, don’t forget how to make money on $1.50 calves, because you may have to do it again some day.” He stresses the importance of figuring out how to make your operation more efficient, more productive, and produce a better quality product. “You have a chance to upgrade and get more competitive at what you do.”
We Are Not Alone
The Brazilian beef industry is increasing its focus on genetics. Brazil currently produces more cattle than the U.S., but the U.S. produces more beef because of higher carcass weights and yields. They started retaining heifers about five years ago. Exports are predicted to be up 10 percent next year, with the top markets Russia, Hong Kong, Venezuela, Egypt and Iran. Brazil’s economy is also growing, increasing domestic demand.
The U.S. faces its most direct competition from Australia, primarily for Pacific Rim markets. Australia is also the prime source for U.S. imports of beef, up 25 percent year to date. That beef will likely not be available next year, tightening U.S. supply. The combination of drought and Chinese demand are severely limiting Australian supply, and the effects will be long-term. “They’re doing exactly what we did in Texas two years ago,” says Stuart. “They’re killing cattle because they have to and because the demand is there. And as we know all too well, that shrinks the cow herd.”
He says much of the world looks at high prices differently than U.S. producers. “When you’re cash poor, the prospect of selling to make cash is attractive. So when prices are high, you take all the cash you can get. But in the U.S. we see high prices as an incentive to expand, to make even more down the road.” Stuart says predictors he has compiled show it is possible to reach future food needs targets, but it will take smart use of resources and a commitment to the people of the world. “We have to make people understand that it is socially irresponsible to legislate away efficiencies and technology. We will starve people if we do that. We will need all our options.”
He says all the global market complexity still boils down to simple economics: “The message from the market is: make more beef.”