Commodity Beef Profile
By Reg Clause, Value-Added Ag specialist, AgMRC, Iowa State University, rclause@iastate.edu.
Revised May 2011.
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. High-quality beef continues to flow to consumers even as the overall cattle and calf inventory has dropped from 130 million in 1975 to 92.6 million in 2011 (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 7 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.
The cattle industry plays an integral role in the country’s economic growth and well being. More than one million cattlemen and women do business in a free-market economy and represent the largest single segment of American agriculture.
The 2007 U.S. Census of Agriculture found that the largest single segment of the U.S. agricultural economy is beef production, with cattle and calves representing about 21 percent of total farm sales.
According to the American Farm Bureau Federation, agriculture is responsible for approximately 21 million jobs—everything from growing the food to selling it in the supermarket. Beef production itself is a major employer, with more than 186,000 full-time jobs on farms and ranches creating more than 1 million more jobs throughout the economy.
Demand
Beef consumption in the United States averaged 61.2 pounds per person in 2008, down from 65 pounds in 2000 (ERS 2008). 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 2 percent to 1.3 percent of disposable income. As of 2007, meat purchases accounted for 1.7 percent of disposable personal income and 30 percent of total food expenditures.
A USDA 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.
Production
On January 1, 2011, the inventory of U.S. beef cows was 30.9 million head, down 2 percent from January 1, 2010. Beef replacement heifers totaled 5.2 million head, down 5 percent. Cattle and calves on feed for slaughter in all feedlots totaled 14 million, up 3 percent. (NASS 2011)
Nearly 70 percent of U.S. cattle are produced in the central region of the country, extending from North Dakota to Texas and from South Dakota to Tennessee. According to the 2007 Census of Agriculture, there were 687,540 beef cattle operations in the United States. Texas hosts the largest number of beef operations (131,769), followed by Missouri (51,289), Oklahoma (47,059) and Tennessee (42,344).
Nebraska, Iowa and Kansas host the largest number of feedlots, but Texas, Kansas, Nebraska and Colorado market the most cattle annually, that is, 5.7 million head, 5.1 million head, 4.8 million head and 1.9 million head, respectively.
In their U.S. Baseline Briefing Book, University of Missouri experts noted that beef demand should strengthen as the U.S. economy recovers.
Processing
Beef production totaled 26.4 billion pounds in 2010, up 1 percent from the previous year. Commercial cattle slaughter during 2010 totaled 34.2 million head, up 3 percent from 2009. The average live weight was 1,279 pounds, down 14 pounds from a year ago. Steers comprised 49.2 percent of the total federally inspected cattle slaughter, heifers 29.8 percent, other cows 10.8 percent, dairy cows 8.3 percent and bulls 1.8 percent.
In their Meat and Poultry Facts 2008, AMI experts speculated that beef slaughter rates will stall, triggering a reconfiguration of the beef packing industry. A South American firm, JBS, purchased two U.S. beef packers in 2008: Swift & Company and Smithfield Beef Group. Barring further consolidation, JBS is likely to dominate the industry in the coming years.
According to NASS, 632 of the 841 plants operating under federal inspection slaughtered cattle. The 14 largest plants slaughtered 55 percent of the total cattle killed in 2010. In 2006, the four largest plants slaughtered nearly 70 percent of all cattle commercially slaughtered.
Top Ten Beef Packers
| Company Name and Location | Daily Capacity |
| Tyson Foods, Arkansas | 27,375 |
| JBS Swift1, Colorado | 26,050 |
| Cargill Meat Solutions, Kansas | 25,850 |
| National Beef Packing Co., Missouri | 13,100 |
| American Foods Group, Minnesota | 5,575 |
| Nebraska Beef, Nebraska | 3,000 |
| Greater Omaha Packing, Nebraska | 2,650 |
| XL Beef | 2,200 |
| Caviness | 1,700 |
| Creekstone, Kansas | 1,600 |
Source: Meat and Poultry Facts, AMI, January 2010.
Exports
Overall, the U.S. beef industry exported 726,229 metric tons (MT) of beef and veal valued at $3.4 billion. Top buyers, accounting for more than half of the U.S. beef exports, were Mexico, Canada, Japan and South Korea. In 2010, Brazil and Australia exported more beef than the United States. However, these countries primarily graze their cattle on pasture rather than feed them grain.
Factors allowing for the upward momentum in the U.S. beef export market, according to USDA, include the weak dollar and strong economic recovery in the rest of the world, coupled with tightened supplies of competing beef. USDA estimated total U.S. beef exports for 2011 at 2.43 billion pounds or 9.3 percent of U.S. production.
Imports
The United States remains a net importer of beef. According to FAS, the United States imported 768,558 MT of beef and veal valued at $2.8 billion. Canada continued to rank as the largest supplier of fresh/chilled beef into the United States in 2010, closely followed by Australia.
Competitive Analysis
In terms of red meat expenditures in 2007, Americans spent $270.42 per person on beef (AMI). According to the USDA, U.S. consumers spent $159.37 per person on poultry that year.
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. Price is also a consideration.
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 43,782 beef cattle certified organic in 2008, up from 20,285 beef cows in 2003. USDA organic standards were implemented in 2002. The United States had 1.85 million acres of pasture and rangeland certified organic in 2008.
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.
Natural Beef
Natural does not have the same strict interpretation as organic does. According to the USDA Food Safety and Inspection 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.
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.
For more information, please visit the Branded/Certified/Verified section of the Web site.
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.
For more information, please visit the Direct Market Beef section of the Web site.
Sources
Agricultural Baseline Projections: U.S. Livestock, 2011-2020, Economic Research Service (ERS), USDA.
Beef, U.S. Baseline Briefing Book, Food and Ag Policy Research Institute (FAPRI), University of Missouri, 2011.
Cattle, National Agricultural Statistics Service (NASS), USDA, 2010.
Census of Agriculture, 2007, NASS, USDA, 2009.
Global Agricultural Trade System (GATS), Foreign Agricultural Service (FAS), USDA.
Livestock, Dairy, and Poultry Outlook, ERS, USDA.
Livestock Slaughter 2010 Summary, NASS, USDA.
Meat and Poultry Facts, American Meat Institute, 2008 and 2009.
Meat, Livestock, Poultry, and Eggs Analysis, FAS, USDA.
National Cattlemen's Beef Association.
Organic Production, ERS, USDA.
U.S. per capita food availability, ERS, USDA, 2008.
Prepared June 2003 and revised May 2011.
