In The Cattle Markets
Beef production and imports.
On April 28, 2020, President Trump invoked the Defense Protection Act to classify meat plants as essential infrastructure that must remain open. This act does not mean that slaughter and fabrication will return to pre-COVID-19 levels in the short term, as plants have had to slow production due to worker absenteeism, as well as greater distancing between employees on the line. For the week ending May 2, slaughter is estimated at 425,000 head, down 8.6% from a week earlier and 36.8% from the same period in 2019. Similar to cattle slaughter, beef production is down an estimated 8.3% from the week ending April 11, 2020, and 22.8% from the same period in 2019.
Given that this higher-valued beef can be exported for a greater price and then lean beef is imported at a lower price, the overall value for beef is greater and the cattle producer benefits from higher beef exports.
Meanwhile, total commitment for beef exports totaled 426,673 metric tons (mt), up 7.6% over the same period in 2019. Total fresh and processed beef imports are up just shy of 1% for the first quarter. There has been discussion about the differences in beef produced and packaged for foodservice compared to retail grocery, and this same principle applies to export beef. Closing off or limiting beef exports does not necessarily mean greater amounts of beef in U.S. retail grocery stores, nor does limiting imports mean higher cattle prices. The reason is because beef exported is not the same beef imported. Even with beef production down, the importance of keeping export markets (and import markets) open is vital to the long-term health of the cattle industry.
The United States is the only country able to supply large volumes of high-quality finished beef. This ability is due to the millions of acres of highly productive cropland and large expanses of grasslands, as well as the marketing system developed to finish cattle on grain. The U.S. cattle industry cannot produce, in a cost-effective manner, all the types of beef demanded by the U.S. consumer. In the past weeks, the market has seen the price effect of the switch from foodservice to greater quantities of retail grocery beef demand on primal beef cuts. Loin wholesale prices have increased 20% since the middle of March, whereas chuck wholesale prices have increased 55% since that same time period. The increase is partly due to the use of chuck for ground chuck sold at retail grocery stores.
Ground beef in the United States typically is a combination of two different products: 50% lean trimmings from grain-fed cattle and 90% lean trimmings from grass-fed cattle or cull cows. These two products are blended together to provide lean ground beef options for restaurants and retail grocery stores. Without these lean ground beef options, many consumers would likely turn to other leaner protein products.
Some producers believe imports should be limited given the current cattle market and the high demand for beef at the grocery store. Without beef imports, however, there would be less 90% trimmings and higher-valued cuts would need to be added to the 50% lean trimmings to produce lean ground beef. Without adequate 90% lean trimmings, the higher-valued beef would need to be ground and added to the 50% trimmings to produce lean ground beef. Given that this higher-valued beef can be exported for a greater price and then lean beef is imported at a lower price, the overall value for beef is greater, and the cattle producer benefits from higher beef exports.
Regardless of the value of the exports to the producer, stopping imports and exports will not necessarily equate to greater quantity at the retail grocery store. Seasonally, imports increase between February and June, when the number of cull cows and grass-fed beef is lowest. Additionally, the United States typically imports a greater quantity of beef than it exports. Limiting trade will not only reduce the availability of beef in the United States, but will lower the price for finished cattle.
Editor’s note: Brenda Boetel is a professor in the Department of Agricultural Economics at the University of Wisconsin–River Falls and a contributor to the Livestock Marketing Information Center, which provided this article. Find more at lmic.info.
