Don Ohsman’s view from the US17 April 2018
Since early in the year, the cow sector, which currently represents around 20% of US slaughter, has struggled to sell all that was produced. Branded cows – the cow selection generated in the most volume – fell from $28 a month ago to $22–23 in the week leading up to and during the 2018 edition of APLF in Hong Kong.
Despite these market difficulties, livestock slaughter numbers are on the up. The USDA National Agricultural Statistics Service (NASS) has recently released meat production and livestock slaughter data for January. Federally inspected cattle slaughter was up 7.1% from January 2017, which had one less weekday than January 2018. By the numbers, January cattle slaughter was up 180,000 head. Heifer slaughter accounted for 51,000 head of the increase and steer slaughter 70,000. Cow slaughter was up 56,000 head.
The increase in female cattle processed by slaughter plants raises some questions about how much cattle herd expansion can be expected this year if current trends persist. The composition of cow slaughter between dairy and ‘other’ cows (beef cows) saw the beef category up 16%.
Last year saw the biggest annual increase in heifer slaughter since 1976, even though it was not near a record number. Increases in heifer slaughter are predicted to be easier for the first seven months of 2018. Last year’s big increases happened between August and the end of the year, making gains in those months of 2018 more challenging. Calf prices during the last four to five months have been 10–20% higher than 12 months earlier, and should be a factor in limiting heifer slaughter later this year as decisions about breeding stock retention become more important.
Beef production, at 2.28 billion pounds, was 8% higher than the previous year. Cattle slaughter totalled 2.76 million head, up 7% from January 2017.
On the up
On 1 February, the cattle-on-feed inventory for 1,000 and above head-capacity lots was 11.63 million head – 7.9% higher than a year ago, according to the Steiner Consulting Group. This is the largest February inventory since 2012, when it was 11.8 million head. This year is different to 2012, however, as there are fewer cattle that have been in inventory for more than 120 days. In February 2012, the 120+ day inventory was 3.59 million head compared with 2.98 million head today. The marketing rate of late has been far faster than it was back then, a function of better demand that has allowed feedlots to stay more current. Take, for example, the marketing rate from January 2012, which was 14.9% of the total inventory. Today, that figure is 16.2%.
The report shows that feedlots put 2.06 million cattle on feed during January. This is 87,000 head more than a year ago – an increase of 4.4%.
Also on the increase was China’s importation of hides. In January, it imported 2.85 million whole cattle hides of 16kg and below, an increase of 7% from January 2017 and 15% more than the previous month (December 2017). For all of 2017, China’s imports of these hides totalled 29.66 million pieces.
With regard to wet-blue, China imported 28.05 million kilograms of full-grain wet-blue in January – a 27% increase over the same month in 2017, and 8% over the previous month (December 2017). For all of 2017, the imports totalled 296.29 million kilograms.
For other wet-blue (no splits), the month’s imports were 27.33 million kilograms, up incrementally over the same month in 2017 and a 16% increase over the previous month (December 2017). The total number of imports for 2017 was 327.41 million kilograms.
A record-breaking year
CBW reported that National Beef Packing (NBP) racked up a record $512 million in EBITDA in 2017. This exceeded NBP’s previous record set in 2016 by 17%. At press time, majority owner Leucadia National Corporation had not yet reported its fourthquarter and full 2017 results. But for nine months (up to 30 September), NBP had income of $310 million before tax, and was poised to break its 2016 earnings record of $329 million.
With these two strong consecutive operating years, Leucadia has now recouped almost 70% of its original $868-million investment, made a little over six years ago, according to a company letter to shareholders and clients.
The combination of a positive cattle supply environment; strong domestic and export demand; NBP’s value-added strategy; its focus on the highest-quality cattle; and flawless execution by its management team, led by Tim Klein, has allowed NBP to achieve the $512 million, says Leucadia. The overall industry seems poised to continue to benefit from favourable supply and demand dynamics, with demand increasing with incomes locally and globally, and supply benefitting from the continued growth in cattle available for processing.
Thinking longer term, Leucadia believes that the new-found ability of the US to access the rapidly growing Chinese market – the first occurrence of this type in 13 years – will further support demand for NBP’s highquality products.