2024 could bring more bad news for the US beef industry.
Retail prices will be higher than in 2023 for consumers. If they don’t get a lot more for their beef than they did at the end of 2023, beef processors will find it difficult to turn a profit. Live cattle prices will soar for cattle feeders due to the ongoing liquidation of the beef cow herd, which is reducing the supply of cattle. The beef packers’ ability to turn a profit this year will be further hampered by all of this.
Because US cow-calf producers are continuing to reduce their herds, packers may face even greater challenges this year than in 2023. As prices for all classes of cattle started to rise early in the previous year, analysts and packers anticipated seeing signs of a rebuilding of the beef cow herd. However, as Donnie King, president and CEO of Tyson Foods, informed analysts in November of last year, those indications did not materialize. His words followed Tyson’s announcement that the company’s Beef division had an operating loss of $323 million for the fourth quarter that concluded in September.
In contrast, JBS Beef North America reported a strong profit for the third quarter of 2023. However, director Wesley Batista Filho informed analysts that the US beef division will continue to face difficulties in the fourth quarter and in 2024 due to a lack of cattle for slaughter. With an adjusted EBITDA margin of 1.7%, the unit’s adjusted EBITDA for the quarter was $103 million. The third quarter of 2022 saw $481.1 million in EBITDA, or an 8.7% margin. According to JBS, changes in market conditions brought about by the turn of the cattle cycle in that region had a material impact on beef margins in North America during the quarter when compared to the prior year. The company claimed that as a result of the circumstances, there were fewer animals available for processing, which raised expenses.
Poultry and pork to gain momentum
As of the end of November 2023, the US Department of Agriculture projected that US beef production would reach 25.810 billion pounds in 2024, a 1.122 billion-pound (4.2%) decrease from the projected 26.932 billion pounds in 2023. From 28.291 billion lbs in 2022 to 2.481 billion lbs, or 8.8%, less would be produced.
Pork and broiler production, on the other hand, will both rise marginally from 2023 to this year, predicts the USDA’s Economic Research Service (ERS). Pork production is expected to reach 27.730 billion pounds, up 1.9%, or 513 million pounds, from 2023. It projects a 1% increase in broiler production, or 441 million pounds, to 46.65 billion pounds in 2023.
The ERS estimates that due to the sharp decline in beef production, red meat and poultry production in 2024 will be 106.529 billion pounds, down 76 million pounds, or 0.1%, from 2023. Additionally, it indicates that this year’s per capita disappearance (consumption) of red meat and poultry will be 224.1 pounds, as opposed to 225.2 pounds in 2023. The amount of beef per person will drop significantly to 55.6 pounds from 57.9 pounds last year and 59.1 pounds in 2022. Compared to 2023, exports of beef and veal will be down by 190 million pounds this year, while imports will only rise by 37 million pounds. It is anticipated that any increase in imports over the next two years will be insufficient to offset the decline in exports and beef production.
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This year’s sharp decline in beef production is expected to be the result of fewer cattle overall. The total head count as of January 1, 2023, was 89.274 million, a 3% decrease from the previous year. The total as of January 1st this year might be down an additional 1.5 million heads, which would probably indicate the lowest point in the current cattle cycle’s overall inventories. However, experts predicted that the reconstruction of the beef cow herd won’t start until at least 2025. There are many causes, but the drought and economic factors like high input costs, interest rates, and financial recovery are important ones.
Nine beef processing plants were forced to close as a result of the devastating drought that lasted from 2010 to 2012. Cattle Buyer’s Weekly data shows that the industry-wide capacity fell to 125,500 head per day by 2016 from 139,000 head per day in 2010. However, from that low point, the capacity total has increased significantly. The capacity of the 71 biggest beef processing facilities in the US is currently 134,705 heads per day. The industry clearly has excess capacity, even with a more conservative estimate of 128,000 head as the maximum daily capacity. A maximum slaughter total of 640,000 heads over five days or 704,000 heads over 5.5 days would result from the 128,000 head total.