Commodity Beef Profile
By Reg Clause, Value-Added Ag specialist, AgMRC, Iowa State University.
Revised June 2013 by Diane Huntrods, AgMRC, Iowa State University.
Revised April 2012 by Gary Brester, professor, Department of Agricultural Economics, Montana State University, firstname.lastname@example.org.
The United States is the world’s largest producer of beef and the world leader in the production of grain-finished cattle. Canada also produces grain-finished cattle, but its industry is only about 15 percent as large as the United States’. The European Union uses some grain in cattle finishing rations but not to the extent of the United States or Canada.
As of January 1, 2013, the U.S. inventory of beef cattle totaled 89.3 million head, down 2 percent from January 1, 2012 (NASS 2013). The United States trails India (324 million), Brazil (197 million), and China (104 million) in terms of cattle numbers. However, U.S. commercial beef production (41.2 billion pounds in 2012) exceeds that of each of these countries by at least 20 percent because of much higher productivity. The United States is among the world’s largest exporters along with Brazil, Australia, and India and is the world’s second largest importer of beef behind Russia.
In addition, the United States is the world’s largest consumer of beef in terms of total pounds. In terms of per capita consumption, the United States (57 pounds, retail weight) is similar to that of Brazil, Australia, and Paraguay, and trails only Uruguay (90 pounds) and Argentina (88 pounds).
In 2012, cattle and calf production generated more than $67.9 billion in farm cash receipts (NASS 2013). Only the corn production sector has a larger share of agricultural output. The 2007 Census of Agriculture indicates that 766,000 beef cow operations (about 35 percent of all total farms and ranches) exist in the United States. Of these, 79 percent have fewer than 50 head, and 90 percent have fewer than 100 head.
Wholesale beef prices reached record levels throughout 2011. Record prices are the result of relatively strong domestic and foreign demand for U.S. beef and tight U.S. and world beef supplies. Consumers drive wholesale beef prices which, in turn, determine the prices for both fed cattle and feeder cattle. Fed cattle prices averaged $114/cwt in 2011 compared to only $70/cwt in 2000. Correspondingly, feeder cattle prices averaged about $130/cwt in 2011 compared to only $85/cwt in 2000. The inflation-adjusted prices of both of these commodities have increased over the past decade.
U.S per capita beef consumption totaled 57 pounds in 2011. Approximately one-half of this consumption is in the form of ground beef. The per capita consumption of poultry (100 pounds) exceeds beef while per capita pork consumption (46 pounds) is similar to beef consumption. However, beef products are more highly priced than poultry or pork. Hence, consumers spend almost as much on beef each year as they do on poultry and pork combined. As a result, beef consumption is relatively sensitive to changes in consumer incomes. Although incomes in the United States have been relatively flat in recent years, demand in foreign countries has increased. Furthermore, it appears that beef supplies in foreign countries have also been declining over the past decade.
The demand for beef declined substantially throughout the 1980s and 1990s. In the mid-1970s, per capita consumption hovered near 90 pounds. By 1999, per capita consumption had declined to 69 pounds. In addition to a decline in per capita consumption, decreases in demand were even larger as lower per capita consumption was coupled with lower prices. Consequently estimates of changes in demand must account for market level changes in price. Between 1980 and 1996, the demand for beef declined by about 50 percent. Health concerns, product inconvenience, inconsistent product quality, and limited access to foreign markets were most likely responsible for this decline. Since 1996, however, domestic demand for beef has increased about 10 percent. In addition, foreign demand for U.S. beef exports has increased considerably in response to increases in incomes in developing countries and trade liberalization efforts.
Beef production involves a 2- to 3-year production cycle. In general, the production cycle is fairly consistent across the United States with some timing differences occurring between Northern versus Southern climates. Mother cows are maintained on ranges and pastures throughout the calendar year. The average U.S. beef cow herd size is only 50 head. However, herd sizes of 400 cows or more are generally considered to be the lower limit for a commercial operation. Cows are bred in the early summer of each year. Genetic improvements are most often fostered through the selection of bulls used for breeding purposes. Calves are generally born in the following spring. Most male calves are castrated shortly after birth and are referred to as steers. Calves remain with their mothers throughout the summer and into the fall. Calves are generally weaned in the fall of each year at weights between 450 and 650 pounds and sold to backgrounders or feedlots. In some cases, weaned calves are mature enough to enter feedlots directly. However, many calves require backgrounding on winter pastures and supplemental feeding. It is common for ranchers to retain some female calves each year as replacements for older breeding cows.
Once calves reach weights between 700 to 900 pounds, they are considered feeder cattle and are placed in feedlots. Feedlots are primarily located in the Great Plains near feed sources. A single feedlot may have the capacity to feed 100,000 or more head at any one time. Feedlots feed cattle with high-energy, grain-based (usually corn, sorghum or barley) rations for 3 to 7 months. A variety of forages (e.g., hay, corn silage and straw) are also used in these rations, but grain represents 70-90 percent of the total diet. Average daily cattle weight gains range from 2.5 to 4 pounds per day. U.S. feedlots have one-time capacities of over 16 million head.
U.S. beef cattle inventories increased from 78 million head in 1950 to 132 million head in 1975. Since 1975, however, inventories have steadily declined and totaled only 89 million head in 2013 (NASS 2013). The 2013 inventory is the lowest since 88.1 million head in 1952. However, commercial beef production from the U.S. beef herd totaled 41.2 billion pounds in 2012. The ability to maintain this level of production from a substantially smaller herd is the result of gradual improvements in technology. In the mid-1970’s, each beef cow produced less that 500 pounds of carcass weight beef. In 2011, beef production per cow had increased to 722 pounds. This increase is the result of improvements in breeding, genetics, animal health products, nutrition, and management.
Beef cow herds exist in every state. Texas, Oklahoma, Missouri, Nebraska, South Dakota, Kansas, Montana, Kentucky, Tennessee and Florida are the ten largest in terms of beef cow inventories with 59 percent of the total U.S. herd. These states have substantial grazing resources that are best managed through cow-calf production.
Commercial cow-calf producers (those that derive the majority of net farm income from calf production) are generally considered to need herd sizes of 400 head or more. Only about 10 percent of operations are in this size category. The majority of cow-calf operations have less than 100 head of cows, and 80 percent have less than 50 head. Operations of this size do not derive the majority of their farm or household income from cattle production. For many producers, cows are used to diversify income, manage land resources and optimize the use of labor. Approximately 10 percent of operations, however, manage over 54 percent of total cow inventories. On average, even those operations with 250 head or more derive only about 50 percent of their cash receipts from cattle production.
Relative to cow-calf producers, the cattle feedlot industry is much more concentrated in a few states. Feedlots are generally located near feed sources in the Central and Southern Plains. Texas, Nebraska, Kansas and Colorado possess approximately 65 percent of U.S. cattle feeding capacities, and the top ten feedlot states represent about 95 percent of total feedlot capacities. Feedlots with capacities under 1,000 head represent the majority of feedlot establishments but market less than 20 percent of finished beef cattle. Feedlots with capacities greater than 1,000 head represent only 5 percent of feedlots but market 80 to 90 percent of fed cattle. Furthermore, feedlots with capacities of 32,000 head or more market approximately 40 percent of all fed cattle annually. Many feedlots are becoming more vertically coordinated with both cow-calf producers/backgrounders and beef packing/retail companies. These alliances reduce risk, foster product quality improvements, reduce transactions costs, improve product flow and help meet consumer demands for source-verified beef products.
After cattle have reached harvest weights in feedlots, they are marketed to businesses that specialize in slaughtering, animal by-product processing and marketing. Most slaughter enterprises also fabricate carcasses into portion cuts (primal and subprimals) as well specific table cuts of beef. Kansas, Nebraska, Texas and Colorado slaughter almost 50 percent of all cattle in the United States. U.S. cattle slaughter totaled 33 million head in 2012, down 3 percent from 2011 (NASS 2013).
Four meat packing companies slaughter and process more than 80 percent of the fed cattle marketed in the United States. All four of those packers own multiple plants, and three packers slaughter and process multiple species of animals in separate facilities. Beef packing concentration increased sharply during a wave of mergers in the late 1980s and early 1990s, as declining beef demand and lower cattle inventories forced beef packers to seek cost savings through scale economies. For example, some meat processing plants have the capacity to slaughter 5,000 head of fed cattle daily. Since the 1990s, however, the level of packer concentration has been relatively stable, although the ownership of the major meat processing companies has changed over the past decade.
Relatively high levels of packer concentration have historically generated concerns about the potential for anti-competitive behavior with respect to the procurement of fed cattle. These concerns have prompted numerous research efforts and legal actions over the past 30 years. Although it is difficult to quantify non-competitive behavior, the general research consensus is that, if negative effects of anti-competitive behavior exist, cost-saving gains generated by scale economies have more than offset such impacts.
In general, the United States exports high-quality table cuts of beef to the Pacific Rim and Canada and “middle” meats (e.g., chucks) to Mexico. In addition, the United States exports most of the edible and inedible by-products produced during cattle slaughtering. Exports of beef, veal and live animals averaged 2.5 billion pounds (carcass weight) over the 1998-2003 period. However, the discovery of a U.S. case of Bovine Spongiform Encephalopathy (BSE) in December 2003 caused 2004 exports to decline to only 0.5 billion pounds. In 2010, exports recovered to similar levels as earlier in the decade, and a new record for exports (3 billion pounds) was set in 2011. Except for the first few years following the BSE discovery, beef exports have represented about 8 percent of total beef supplies. In 2011, exports represented almost 10 percent of total U.S. beef supplies.
Mexico, Canada, Japan and South Korea are the four largest U.S. beef export markets in terms of volume. In terms of value, Canada is the largest export market. However, the overall export market share has vacillated among these countries over the past 10 years. Perhaps the most striking change, however, is that recent Japan and South Korean imports of U.S. beef are less than one-half of levels that occurred in 2003 prior to the discovery of BSE in the United States. Mexico and Canada have become increasingly important export destinations for the U.S. beef industry. Most beef exports to Canada originate from Midwestern U.S. plants and flow into Eastern Canadian provinces.
In 2013, Japan expanded access to U.S. beef by accepting bone-in and boneless beef from animals less than 30 months of age. This marked a historic transition from Japan’s previous policy to only accept beef from animals 20 months of age or less. There are currently 72 companies approved to export beef to Japan. Additional changes in June opened the Japanese market for U.S. ground beef, and nine companies are now approved to export ground beef to Japan. (USDA Blog, December 2013)
The United States imports high-quality fed cattle and beef from Canada, feeder cattle from Mexico, and grass-finished beef from Australia, New Zealand and South America. Approximately one-half of domestic beef consumption is in the form of ground beef. However, much of the ground beef produced by grain finishing cattle contains too much fat to be palatable to most consumers. Hence, much leaner South American and Oceania grass-fattened beef imports are used to increase the leanness of domestically-produced ground beef. Fed cattle and beef imports from Canada are similar in quality to U.S. fed beef production. Calf imports from Mexico help soften the effects of seasonal U.S. calf production so that a continuous flow of fresh beef can be supplied to consumers throughout the year. The combination of live cattle and beef imports has represented about 12 to 14 percent of total U.S. beef supplies for the past two decades. For much of the past decade, imports from all sources exceeded 4 billion pounds. In 2011, however, imports declined to 3 billion pounds and represented only 10 percent of U.S. beef supplies. Given that beef prices were at record levels in 2011, lower beef imports are an indication of tight worldwide beef supplies.
Live cattle and beef imports into the United States from Canada occur across the western part of both countries. Alberta fed cattle and beef are imported by Western and Midwestern beef slaughtering and processing companies.
Beef competes directly with pork and poultry for consumer purchases. Beef lost market share to both of these competing products during the 1980s and 1990s because of health concerns associated with beef consumption, inconsistent product quality, competitive pork and poultry prices, and a lack of beef product convenience. However, demand has increased somewhat in recent years, and consumers spend almost as much on beef annually as on pork and poultry combined. About 65 percent of all beef is consumed at home versus 35 percent away-from-home.
The diversity of climates in which beef calves are produced requires breed diversity. That is, some beef breeds are not well-suited for certain environments (e.g., cold climates versus warm, humid climates). Hence, dozens of genetic lines exist within the beef sector, as opposed to only four major pork genetic lines and two major poultry genetic lines. The number and diversity of genetic lines in the beef industry contributes to product inconsistency and places beef at a competitive disadvantage relative to pork and poultry with respect to this attribute.
With the exception of concerns caused by BSE during the 2004-2006 period, the value of beef, live animal and by-product exports has exceeded the value of imports since the early 1980s. Internationally, the United States (and Canada) has a comparative advantage in the production of high-quality, grain-finished beef. However, substantial competition for export markets exists among Australia, New Zealand, Canada and the United States. The United States and Canada compete with each other for grain-finished beef export markets. However, both countries compete with Oceania and, to a lesser extent, South American countries for markets in which grass-fed beef are considered a reasonable substitute for grain-fed beef.
South Korea’s reduced demand for U.S. beef following the discovery of BSE in North America highlights the importance of developing, implementing and maintaining animal identification and traceability systems. In recent years, several important export markets have instituted age and/or source verification requirements for market access. Such actions are WTO-compliant as long as they are applied consistently to both domestic and foreign producers.
Currently, the United States lags behind many other countries in adoption of livestock and meat traceability systems. It now appears that mandatory systems will not be implemented in the United States. Hence, various voluntary age and source verification systems are being developed. The use of such systems could be a requirement for producers who seek price premiums in export markets. Animal identification and meat traceability systems are becoming widely adopted in many key U.S. meat export destinations. A central reason the United States lags in the adoption of livestock traceability systems is that the U.S. cow-calf production sector is characterized by a large number of small, decentralized operations who often do not readily see direct benefits associated with the added costs of an animal identification program. Furthermore, the U.S. federal government supports voluntary, rather than mandatory, animal tracing systems in contrast to many major meat importing and exporting countries.
To the extent that beef represents a commodity, the primary approach that cattle producers use to sustain a competitive advantage is to follow a low-cost strategy by adopting technologies that reduce per unit production costs. However, many producers are unable to expand operations to gain scale economies and lower unit production costs. For many producers, an alternative is to follow a niche marketing strategy in an effort to increase returns from beef production. It should be noted that such efforts are not without additional costs, capital needs, entrepreneurial skills, and risk. Value-added opportunities include organic, natural, branded and directly marketed beef products.
Agricultural Baseline Projections: U.S. Livestock, 2011-2020, Economic Research Service (ERS), USDA.
Beef Demand Drivers, NAIBER, Kansas State University.
Cattle, National Agricultural Statistics Service (NASS), USDA, 2010.
Census of Agriculture, 2007, NASS, USDA, 2009.
Red Meat Export Market Access, Ag Manager, Kansas State University.
Prepared June 2003 and revised June 2013.