Based on the USDA Agricultural Marketing Service (AMS), livestock slaughter estimates for the week ending July 11, cattle slaughter was 0.2% below last year. Accordingly, estimated steer and heifer slaughter trail year-ago levels by almost 1%, while the slaughter of cows and bulls maintains levels just above last year. Despite the lag in the number of steers and heifers slaughtered on a weekly basis, the proportion of fed cattle in the slaughter mix has rebounded (Figure 1).

As more fed cattle were reintroduced into the slaughter mix in June, average carcass weights increased (Figure 2).

For the week ending June 27, steer and heifer carcass weights were about 42 pounds and 37 pounds, respectively, heavier than the same week last year. The gains elevated the average carcass weight for that week to 34 pounds above last year. Further, heavier fed cattle carcass weights raised average carcass weights for June 2020 to 24 pounds above the five-year average for the month. Based on AMS slaughter reports, total steer and heifer slaughter in June 2020 will likely be less than year-ago levels, but heavier carcass weights will likely support heavier June beef production relative to a year ago.

2020 beef production raised on slaughter and weights

Based on stronger-than-expected AMS slaughter data for June, the second-quarter 2020 production forecast was adjusted higher but remains about 11% below last year. This increase in slaughter capacity and heavier carcass weights was carried into second-half 2020, raising the production forecast. Accordingly, the annual beef production forecast for 2020 was increased 260 million pounds from last month to 26.9 billion pounds, about 1% below 2019.

As more fed cattle are expected to be marketed in second-half 2020, it is anticipated that feeder cattle placements will be pulled forward at that time. This adjustment in the analysis increased fed cattle slaughter in 2021. As a result, beef production in 2021 is forecast higher at 27.7 billion pounds, up 145 million pounds from last month.

Market-ready cattle supplies weigh on cattle prices

Despite slaughter rates having stabilized near year-ago levels, there continues to be a large volume of market-ready cattle supplies available for slaughter. Based on the USDA National Agricultural Statistics Service Cattle on Feed report for June, the number of cattle on feed over 150 days grew to 971,000 head, or 42%, more than last year. Further, wholesale beef prices declined rapidly from recent peaks to below year-ago levels, marking a sharp turnaround.

The June price for fed steers marketed for slaughter in the 5-area marketing region averaged $103.82 per hundredweight (cwt), but prices ended the month at $96.21, losing more than $16 from the first week of June. With the expectation of steadying demand for slaughter cattle and a large number of market-ready cattle in feedlots, price forecasts for both the third and fourth quarters were lowered by $4 to $100 and by $3 to $103 per cwt, respectively. The 2021 price forecast remains unchanged from last month.

With higher anticipated fed cattle slaughter in 2020, feedlot marketings will increase; a faster pace of marketings will likely improve feedlot demand for feeder cattle. Recent price strength from the end of the second quarter and early third quarter was carried through to the third-quarter forecast, which was raised $1 to $133 per cwt. The fourth-quarter 2020 price was unchanged from last month as producers face higher forecast feed costs and lower forecast fed cattle prices. As a result, this month’s annual price forecast for 2020 was $132 per cwt. The 2021 annual feeder steer price is unchanged.

Beef imports down in May

U.S. beef imports fell 9% year over year to 269 million pounds in May. U.S. beef imports were down from six of the top seven beef suppliers (Table 1).

Most of the reductions in beef shipments were from Australia and New Zealand. Beef imports from Oceania have been important to the United States. The two countries accounted for 33% of U.S. beef imports in May but shipped 35% (47.5 million pounds) less beef in May 2020 than a year earlier. U.S. beef imports from Australia and New Zealand were down 41% and 27% in May, respectively. This was partly due to lower domestic production limiting the supply of fat trimmings, which decreased demand for imported lean trimmings; the two are commonly blended together to produce ground beef. However, from January to May 2020, Oceania accounted for over 38% of U.S. total beef imports, just 1% less than it did the year before.

In contrast to the slowdown in U.S. imports from Oceania in May, imports from Mexico were up 50% above last year. Mexico’s record-breaking beef shipments to the U.S. in May exceeded the previous top volume shipped in May 2017 by 22.5 million pounds. The depreciated peso relative to the U.S. dollar made Mexican beef an attractive import for the U.S. market. Shipments from Nicaragua were 10.44% higher than a year earlier, but the combined increase from Mexico and Nicaragua was not enough to offset reductions in volume from remaining suppliers.

In a closer examination of U.S. beef imports, Figure 3 shows them over the first five months of 2020 and during the last several years. The disruptions of COVID-19 came with high unemployment among service-related occupations such as restaurants, hotels, bars, and institutions and a weakened U.S. economy.

Beef imports during the COVID-19 pandemic have been lower month over month since March (see the yellow line in Figure 3). The downward trend partly reflects tight U.S. beef supplies due to disruptions in slaughter plants that reduced the need for 90% to 95% imported lean beef for blending with domestic beef to produce ground beef.

The forecasts for second- and third-quarter imports were revised up to 820 million pounds (+35 million) and 760 million pounds (+30 million), respectively. Stronger demand for processing-grade beef is expected as traditional grilling-season demand kicks into full swing, and desire for less expensive animal protein increases demand for ground beef. Import strength of the second quarter was carried over into the third quarter. However, third-quarter imports are expected to remain lower than last year, as lower exportable supplies are expected from Oceania. The fourth-quarter beef import forecast remains unchanged from last month at 685 million pounds. No changes were made to the 2021 import forecast.

Beef exports decline in May

U.S. beef exports in May 2020 were 188 million pounds, almost 84 million pounds or 31% below a year ago (Table 2).

May beef exports had not been at or below 188 million pounds since May 2009, when the United States exported just 173 million pounds. The largest reductions in beef exports were to Mexico, followed by Japan. Beef exports to Mexico had not been lower since February 2004, after the discovery of bovine spongiform encephalopathy (BSE) in December 2003.

Mexico’s economy was weaker in May, and a depreciated currency likely made U.S. beef products more expensive and less attractive to Mexican consumers. May exports to Japan and South Korea were lower year over year, partly due to lower exportable supplies and higher prices. Reductions in beef exports were also seen for other major destinations such as Canada, Taiwan and Vietnam. Of the seven major destinations highlighted in Table 2, Hong Kong was the only one that had a year-over-year increase in beef shipments from the U.S.

An examination the U.S. beef export market shows a notable change in the trend of beef exports (see the yellow line in Figure 4).

Beef shipments to six of the seven major U.S. beef destinations were down in May year over year, partially due to fewer exportable supplies from the U.S. and higher domestic beef prices. However, Mexico is one of the U.S. top beef destinations, and a weaker economy and depreciated currency there likely played a role in reducing import demand. In May, the reduction in shipments to Mexico accounted for 35% of the U.S. decrease in beef exports year over year. Another factor contributing to the declining trend of beef exports was weaker demand from Japan and South Korea, likely connected to economic disruptions caused by COVID-19.

The second-quarter beef export forecast was revised down 50 million pounds to 625 million pounds, due in part to weaker demand in Mexico and continued tightness in exportable supplies. The third-quarter beef export forecast was increased to 770 million pounds (+20 million pounds) on greater expected U.S. beef production, providing more exportable beef supplies, though at 2% lower than last year for the quarter.