by Reg Clause, Value-Added Ag specialist, AgMRC, Iowa State University, rclause@iastate.edu.

Revised June 2008.

Overview
The United States is the world’s largest producer of beef, according to the USDA. The United States also has the largest fed-cattle industry in the world, primarily high-quality, grain-fed beef used for both domestic and export use.

The U.S. beef industry has undergone massive improvements in overall system efficiency. Record tonnage of high-quality beef continues to flow to consumers even as the overall cattle and calf inventory has dropped from 130 million in 1975 to under 97 million in 2008 (National Agricultural Statistics Service, or NASS). This is occurring because of significant improvements to genetics, which has virtually doubled the weaning weights since the 1960s and has made it possible to consistently deliver an animal that has gained 1,000 pounds each month since birth. The other efficiency gains have been made through technology, including growth implants with strategies to optimize their use. Also, industry consolidation has led to more comprehensive use of parasite control, mineral supplementation, good feedbunk management, optimization of rebreeding cycles and much more.

Like most commodity production, cattle and beef are subjected to a cyclical pattern of production: a series of peaks and valleys in herd size and production that typically lasts from eight to 12 years. This cycle of production is counter-cyclical to the price. These cycles fall heaviest on the cow/calf sector, which has no real margin recourse or an ability to manage supply effectively. In beef production, large amounts of grain are fed to the animals, so the cattle cycle is affected by the price and supplies of grain as well. Today, we see the effects of foreign trade and the politics of bovine spongiform encephalopathy (BSE or more commonly, mad cow disease) dramatically influencing price. While exports generally amount to about 9 percent of total beef sales, the effect on price can be dramatic and has been a significant drag on what should be a higher market at this time.
  

Beef is consumed 77.8 million times each day across America. And, about 9 in 10 households will serve beef in a two-week period. According to NPD/CREST (1997), that percentage has remained fairly stable over the past decade.

Demand

Beef consumption in the United States averages 67 pounds per person per year. According to USDA, U.S. consumers continue to purchase more meat with a smaller proportion of disposable income, continuing the long-term trend. ERS predicts that over the next 10 years, meat purchases will decline from about two percent to 1.3 percent of disposable income. Additionally, ERS predicts that per capita beef consumption will decline slightly in the next 10 years, when compared to poultry.
 

A USDA-ERS study concluded that almost 65 percent of all beef was purchased at retail stores for at-home consumption. Ground beef ranked first for at-home consumption followed by steaks. On average, consumers purchased 43 pounds of beef from retail stores. Ground beef consumed at restaurants accounted for 60 percent of the beef eaten away from home. Consumers purchased more than 23 pounds of beef away from home a year.
 

Exports

Developing countries continue to provide a foundation for growth in global trade. Overall, the U.S. beef industry exported 771,196 million metric tons (MT) of beef and beef variety meats in 2007.  USDA data showed that end-of-year export volume was 17.5 percent higher than 2006. Exports fell in 2003 when bovine spongiform encephalopathy (BSE) was discovered in a cow in Washington State. Since then, surveillance testing has increased from 20,000 head to more than 400,000 head.  

The 2001 discovery of BSE cases in Japan badly affected their per capita beef consumption and beef imports in 2002. However, the decline in Japanese imports was offset by a strong showing in other U.S. beef industry markets, ensuring the third best export year in U.S. history. Japan has since implemented a 100 percent testing regime that has resulted in the discovery of many BSE cases, keeping their market sensitive to the issue. This situation has had dire consequences for the restaurant trade that relied on high-quality U.S. beef.

When BSE was detected in U.S. beef, Japan, Korea, Taiwan, China, and other countries imposed a ban on U.S. beef imports in late 2003. The banning of U.S. beef led to its partial replacement with beef from other sources, principally Australia. Although the ban was recently lifted, the net effect was to reduce demand for what has remained a high tonnage output by U.S. producers. However, domestic demand remains strong, and the Canadian border remained closed until recently, reducing the number of cattle coming into the United States for slaughter. That situation partially offset the effect of the loss of U.S. beef exports.

U.S. beef exports totaled 771,196 MT valued at $2.617 billion in 2007. The top two destinations for U.S. beef in 2007 were Mexico and Canada. U.S. beef exports in 2008 are expected to make steady gains. However, it will be several years before they reach the volume levels experienced prior to the 2003 discovery of BSE in the United States.  

This rising meat demand will lead to gains in global trade. Higher income countries of east Asia, particularly Japan and South Korea, continue to increase meat imports as land availability and environmental issues constrain their livestock industries. Strong economic growth in Mexico will generate increases in beef imports in that country as well. Limited export gains in Canada, New Zealand, and Australia will also boost U.S. exports.

U.S. total meat exports will continue to climb through 2011, reflecting improved global economic growth and rising demand for meat. USDA-ERS estimates that the farm value of meat exports, about 12 percent of the total value of domestically produced meat in 2001, will grow to 14 percent by the end of 2011.

Imports

The United States imported 1.17 billion MT of beef valued at $3.7 billion. Canada continues to remain the largest supplier of fresh/chilled beef into the United States followed by Australia.
 

However, around 2010, the United States is expected to become a net beef exporter of beef. Exports of high-quality beef exceed imports of lower quality grass-fed beef.

Supply

The January 1, 2008 USDA cattle and calves inventory was 96.7 million head, slightly below the 97 million in January 2007.

Beef production was 26.4 billion pounds in 2007, according to NASS. Cattle slaughter for 2007 was 31.6 million head. Average live weight at federally inspected plants in 2007 was 1,273 pounds.

Net returns to livestock producers are expected to be relatively high in the short run, due to low grain and soybean meal prices, according to the ERS. Feed prices are expected to remain moderate through 2011. Increasing farm-level livestock prices will support producer returns and encourage growth in total meat production.

Processing

Daily slaughter capacity of the top five beef packing firms changed slightly in recent years. According to the Cattle Buyers Weekly (CBW) annual ranking of the top beef packers, daily slaughter capacity of the top five firms was 102,059, down from 102,600 head/day in 2002.

The share of the top three and the top five packers in steer and heifer slaughter both increased to their highest levels recorded by CBW since the early 1990s. The top three’s share in 2001 was 73.8 percent, up 1.7 percent from 2000. The top five's share was 88.7 percent, up 3.7 percent. USDA data, however, shows a trend of lower market share in 2001 compared with 2000. According to USDA, 11 of the 227 beef processing plants accounted for nearly 79 percent of the total in 2005. 

Top Ten Beef Packers

Company Name and Location	Capacity, head/day
Tyson Foods, Arkansas	36,000
Cargill Meat Solutions, Kansas	28,300
Swift & Co., Colorado	16, 759
National Beef, Missouri	13,000
Smithfield Beef Group, Wisconsin	8,000
American Foods Group, Minnesota	6,500
Greater Omaha, Nebraska	2,650
Nebraska Beef, Nebraska	2,600
Beef Packers, California (tie)	1,800
Brawley Beef, California (tie)	1,800

Source: Cattle Business Weekly, January 18, 2006. 

Beef ranks first among the proteins available at restaurants followed by chicken. Commercial restaurants served 11.3 billion beef servings and 9.6 billion chicken servings in 2004, according to data from NPD Foodworld. To view factors affecting U.S. beef consumption, click on http://www.ers.usda.gov/Publications/LDP/OCT05/Idpm13502/.
 

According to the NASS, commercial red meat production for the United States totaled 45.8 billion pounds in 2005. Beef production was 24.8 billion pounds, and total cattle slaughter during 2005 was 32.4 million head.

Pork production, on the other hand, totaled 20.7 billion pounds and set a new record in 2005. Hog kill totaled 104.7 million head in 2006.

Beef has traditionally competed with the pork industry for per capita meat consumption with United States and global consumers. However, the poultry industry has increased in per capita meat consumption and the amount of disposable income spent on meat at a greater rate than beef or pork. This trend is attributed in part to the rapid development of convenient poultry products. As more and more consumers work outside the home, convenience and ease of preparation become an issue for the meat industry.

Issues to Follow

Environmental Protection Agency (EPA) regulations will have an impact on the U.S. beef industry. Recent issues have included definitions and regulations for dust particles and cow manure. The EPA continues to finalize confined animal feeding operation (CAFO) rules.
 

Value-added Opportunities

Because the cyclical nature of the beef industry leads to over-supplies and depressed prices, many producers look for alternatives to market their cattle versus the traditional live commodity markets.

Organic Beef

During the 1990s, organic farming became one of the fastest growing segments of U.S. agriculture. The United States had 36,1163 beef cattle certified organic in 2005, up from 20,285 beef cows in 2003. USDA organic standards were implemented in 2002.

Why the large increase in organic beef? Many producers feel it is a good way to lower input costs, decrease reliance on nonrenewable resources, capture high-value markets with premium prices and boost farm income. Organic beef production is based on a system of farming that maintains and replenishes soil fertility without the use of pesticides and fertilizers. Organic beef is minimally processed without artificial ingredients, preservatives, or irradiation. For more information on organic beef, please see the organic beef section of the web site at http://www.agmrc.org/beef/orgbeef.html. 
  

Natural Beef

Natural does not have the same strict interpretation as organic does. According to the USDA Food Safety Inspective Service, all fresh meat qualifies as “natural,” but those labeled “natural” cannot contain any artificial flavor or flavoring, coloring ingredient, chemical preservatives, or any other artificial or synthetic ingredient; and the product and its ingredients are not more than minimally processed (ground, for example). Some companies promote their beef as natural because the cattle were not exposed to antibiotics or hormones and were totally raised on a range instead of being “finished” in a feedlot.

Research conducted at Kansas State University has shown that consumers tended to associate natural beef with local, family farms and perceived an increased value from that aspect. Research shows that some suburban, higher income consumers in some regions are willing to pay more for natural beef cuts from the loin. This is a growing market, but still a small percentage of total U.S. meat sales.
 
For more information on natural beef, please see the natural beef section of the Web site at http://www.agmrc.org/beef/natbeef.html. 
 

Branded/Certified/Verified

Traceability, tracking the product from its origin through processing, is becoming a competitive advantage to today’s meat suppliers. Product quality attributes or the actual manufacturing process is verified or certified by a third party.

Such programs may become increasingly important as the food industry makes further attempts to appeal to the social consciousness of consumers. According to USDA, the top three U.S. restaurant franchises place restrictions on how animals used in the companies’ foods are produced, accounting for approximately 35 percent of franchised restaurant sales.

Direct Market Beef

Direct marketing is selling food and farm products directly to consumers without using an intermediary. This may include direct sales to grocery stores, restaurants, door-to-door and freezer sales and Internet marketing.

Direct marketing of livestock products is not as common as other vegetables and melons, for example, because livestock require further processing. The percentage of farms with direct sales was higher in more urbanized counties.

However, direct marketing can provide prices for producers higher than typical wholesale prices, yet below supermarket prices. Interest in food safety, the environment and alternative agriculture has also supported this growth. Consumers enjoy dealing face-to-face with the producers of the products they are purchasing.


Sources
Agricultural Baseline Projections, Economic Research Service (ERS), USDA.

Beef (Domestic Production and International Trade Information), FSAonline, USDA.

California Commodity Profile: Beef, Agricultural Issues Center, University of California, 2002.

Cattle, ERS, USDA.

Cattle, National Agricultural Statistics Service (NASS), USDA.

Environmental Issues Overview, National Cattlemen's Beef Association.

FASonline, U.S. Trade Internet System, Foreign Agricultural Service, USDA.

Livestock Slaughter - Annual Summary, NASS, USDA.

Positioning the Beef Industry for the Future, Kansas State University, Department of Agricultural Economics - Discusses issues and outlines strategies of the beef industry: marketing, productivity increases, competition with other meats, brand name versus generic, dairy cattle slaughter.

Prepared June 2003 and revised June 2008.